81 FR 44773 - Best Interest Contract Exemption; Correction
DEPARTMENT OF LABOR
Employee Benefits Security Administration Federal Register Volume 81, Issue 132 (July 11, 2016)
Employee Benefits Security Administration
Federal Register Volume 81, Issue 132 (July 11, 2016)
| Page Range | 44773-44784 | |
| FR Document | 2016-16355 |
[Federal Register Volume 81, Number 132 (Monday, July 11, 2016)] [Rules and Regulations] [Pages 44773-44784] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-16355] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2550 [Application No. D-11712; Prohibited Transaction Exemption 2016-01] [ZRIN 1210-ZA25] Best Interest Contract Exemption; Correction AGENCY: Employee Benefits Security Administration (EBSA), U.S. Department of Labor. ACTION: Technical corrections. ----------------------------------------------------------------------- SUMMARY: This document makes technical corrections to the Department of Labor's Best Interest Contract Exemption, which was published in the Federal Register on April 8, 2016. The Best Interest Contract Exemption allows certain persons that are fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA) or the Internal Revenue Code (the Code), or both, by reason of providing investment advice, to receive compensation that may otherwise be prohibited. The corrections in this document fix typographical errors, make minor clarifications to provisions that might otherwise be confusing, and confirm insurers' broad eligibility to rely on the exemption, consistent with the exemption's clearly intended scope and the analysis and data relied upon in the Department's final regulatory impact analysis (RIA). DATES: Issuance date: These technical corrections are issued July 11, 2016, without further action or notice. Applicability date: The Best Interest Contract Exemption, as corrected herein, is applicable to transactions occurring on or after April 10, 2017. FOR FURTHER INFORMATION CONTACT: Brian Shiker or Susan Wilker, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, (202) 693-8824 (this is not a toll-free number). SUPPLEMENTARY INFORMATION: Background The Best Interest Contract Exemption was granted pursuant to ERISA section 408(a) and Code section 4975(c)(2), and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637 (October 27, 2011)). It was adopted by the Department in connection with the publication of a final regulation defining who is a fiduciary of an employee benefit plan under ERISA as a result of giving investment advice to a plan or its participants or beneficiaries (Regulation).\1\ The Regulation also applies to the definition of a ``fiduciary'' of a plan (including an IRA) under the Code. --------------------------------------------------------------------------- \1\ 81 FR 20945 (April 8, 2016). --------------------------------------------------------------------------- The exemption provides relief from provisions of ERISA and the Code that generally prohibit fiduciaries with respect to employee benefit plans and individual retirement accounts (IRAs) from engaging in self- dealing and receiving compensation from third parties in connection with transactions involving the plans and IRAs. The exemption allows entities such as registered investment advisers, broker-dealers, banks and insurance companies (referred to in the exemption as Financial Institutions), and their employees, agents and representatives (referred to as Advisers), that are ERISA or Code fiduciaries by reason of the provision of investment advice, to receive compensation that may otherwise give rise to prohibited transactions as a result of their advice to plan participants and beneficiaries, IRA owners and certain plan fiduciaries (including small plan sponsors). The exemption is subject to protective conditions to safeguard the interests of the plans, participants and beneficiaries and IRA owners. The Best Interest Contract Exemption is broadly available for Advisers and Financial Institutions that make investment recommendations to retail ``Retirement Investors,'' including plan participants and beneficiaries, IRA owners, and non-institutional fiduciaries (referred to in the exemption as ``Retail Fiduciaries''). As a condition of receiving compensation that would otherwise be prohibited under ERISA and the Code, the exemption requires Financial Institutions to acknowledge their fiduciary status and the fiduciary status of their Advisers in writing. The Financial Institution and Advisers must adhere to enforceable standards of fiduciary conduct and fair dealing with respect to their advice. In the case of IRAs and non- ERISA plans, the exemption requires that the standards be set forth in an enforceable contract with the Retirement Investor; the exemption permits reliance on a negative consent process for existing contract holders. Under the exemption's terms, Financial Institutions are not required to enter into a contract with ERISA plan investors, but they must adhere to these same standards of fiduciary conduct, which the investors can effectively enforce pursuant to ERISA sections 502(a)(2) and (3). Likewise, ``Level Fee'' Fiduciaries that, with their Affiliates, receive only a Level Fee in connection with advisory or investment management services, do not have to enter into a contract with Retirement Investors, but they must provide a written statement of fiduciary status, adhere to standards of fiduciary conduct, and prepare a written documentation of the reasons for the recommendation. Explanation of Corrections This document makes technical corrections to the Best Interest Contract Exemption as described below. In addition, the document adds an identifier, Prohibited Transaction Exemption 2016-01, to the heading of the Best Interest Contract Exemption. For convenience, the text of the corrected exemption is reprinted in its entirety at the conclusion of this document. The preamble to the originally granted exemption provides a general overview of the exemption, at 81 FR 21002. [[Page 44774]] 1. In the preamble discussion of the negative consent procedure for entering into the contract with existing contract holders, page 21023, the Best Interest Contract Exemption stated that ``If the Retirement Investor does terminate the contract within that 30-day period, this exemption will provide relief for 14 days after the date on which the termination is received by the Financial Institution.'' However, Section II(a)(1)(ii) of the exemption text regarding the negative consent procedure, page 21077, inadvertently failed to include that sentence. Section II(a)(1)(ii) is corrected to insert that sentence as the second sentence of the section. This correction will provide certainty to parties relying on the exemption as to the period of relief following termination of the contract by any Retirement Investor. 2. Section II(a)(1)(ii) of the exemption defines an existing contract as ``an investment advisory agreement, investment program agreement, account opening agreement, insurance contract, annuity contract, or similar agreement or contract that was executed before January 1, 2018, and remains in effect.'' There is an error in the quotation of that language on page 21023 of the preamble, which, rather than using the date ``January 1, 2018,'' referred to the ``Applicability Date.'' For avoidance of doubt, the Department confirms that January 1, 2018, is the correct date of reference for existing contracts. 3. Section II(h) of the exemption, page 21079, lacked a comma between ``(g)'' and ``III.'' The first sentence of Section II(h) is corrected to read ``Sections II(a), (d), (e), (f), (g), III and V do not apply to recommendations by Financial Institutions and Advisers that are Level Fee Fiduciaries.'' 4. Section VI of the exemption, page 21082, is entitled ``Exemption for Purchases and Sales, Including Insurance and Annuity Contracts.'' However, the text of Section VI(b) referred only to a ``purchase'' and inadvertently omitted reference to a ``sale.'' Section VI(b) is corrected to insert ``or sale'' immediately following ``purchase,'' and, on line 9 to replace ``from'' with ``with,'' to conform to the section heading and accurately describe the transactions covered by the exemption. 5. Section VII(b)(3), page 20182, included an unmatched close parenthesis. Section VII(b)(3) is corrected to delete '')'' after the word ``contract.'' 6. The definition of ``Adviser'' in Section VIII(a) of the exemption provided, in relevant part, that an Adviser ``means an individual who: (1) Is a fiduciary of the Plan or IRA solely by reason of the provision of investment advice described in ERISA section 3(21)(A)(ii) or Code section 4975(e)(3)(B), or both, and the applicable regulations, with respect to the assets of the Plan or IRA involved in the recommended transaction (emphasis added).'' In contrast, Section I(c)(4) of the exemption provided an exclusion for an Adviser that ``has or exercises any discretionary authority or discretionary control with respect to the recommended transaction.'' Section I(c)(4) reflects the Department's intent that the exemption not apply if the Adviser has or exercises discretion regarding the recommended transaction. The Department did not intend to prevent Advisers from using the exemption if they have discretionary authority over other assets of the Plan or IRA that are not subject to the investment advice or if they previously had, or subsequently gain, discretionary authority over assets of the Plan or IRA. To avoid any doubt as to the availability of the exemption under these circumstances, Section VIII(a)(1) is corrected to delete the word ``solely.'' 7. Under Section VIII(e)(3)(iii), insurance companies relying on the exemption must be ``domiciled in a state whose law requires that actuarial review of reserves be conducted annually by an Independent firm of actuaries and reported to the appropriate regulatory authority.'' This condition inadvertently limited the availability of the exemption with respect to insurance companies because, while state laws generally require annual actuarial reviews of insurance company reserves to be conducted by a qualified actuary appointed by the board of directors, they do not generally require that such reviews be performed by an ``Independent firm of actuaries.'' See National Association of Insurance Commissioners (NAIC) Actuarial Opinion and Memorandum Model Regulation, April 2010.\2\ As evidenced by the Department's Regulatory Impact Analysis (RIA), the Department clearly intended to make the exemption broadly available to insurance companies. To ensure that the exemption is available to insurance companies as the Department clearly intended in its original rulemaking, Section VIII(e)(3)(iii) is corrected to delete the phrase ``by an Independent firm of actuaries.'' --------------------------------------------------------------------------- \2\ Available at http://www.naic.org/store/free/MDL-822.pdf. Section VIII(e)(3)(iii) was in the proposed exemption (80 FR 21960, 21988 (April 20, 2015)) and was based on several prior individual exemptions issued by the Department related to reinsurance by captive insurance companies (see e.g., PTE 2000-48, 65 FR 60452 (Oct. 11, 2000), PTE 2013-06, 78 FR 19323 (March 29, 2013), and PTE 2015-10, 80 FR 44765 (July 27, 2015)). --------------------------------------------------------------------------- 8. Section VIII(j) of the exemption defines the term ``Plan'' to mean ``any employee benefit plan described in section 3(3) of the Act and any plan described in section 4975(e)(1)(A) of the Code.'' The word ``Act'' refers to the Employee Retirement Income Security Act of 1974, which is defined in the exemption as ``ERISA.'' To avoid uncertainty as to the meaning of the word ``Act,'' Section VIII(j) is corrected to replace the words ``the Act'' with the word ``ERISA.'' Based on the limited, corrective purpose of these changes, the Department finds for good cause that notice and public comment procedure is unnecessary. All of the corrections either fix typographical errors; clarify provisions that might otherwise be confusing; or bring the text of the exemption into agreement with the common understanding during the rulemaking of the exemption's application to insurance companies, as well as with the Department's clear intent, as expressed in the preamble and RIA analyses for the final rule and exemptions. The corrections set forth in this document will not alter the analysis and data contained in the RIA applicable to the rulemaking, including the assessment of its costs and benefits. Executive Order 12866 Under Executive Order 12866, ``significant'' regulatory actions are subject to the requirements of the Executive Order and review by the OMB. Section 3(f) of Executive Order 12866, 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'' regulatory actions); (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. Principally due to correction no. 7, described above, and in light of the significance of the original rulemaking, this action is being treated as ``significant'' within the meaning of [[Page 44775]] Section 3(f)(1) of the Executive Order. The analysis and data contained in the final RIA applicable to the rulemaking, including the assessment of its costs and benefits, will now more appropriately represent the rule as amended by this action and as originally intended. As a result, these corrections were submitted to the Office of Management and the Budget (OMB) for review. As noted above, the technical corrections to the Best Interest Contact Exemption published in the Federal Register on April 8, 2016 (81 FR 21002) fix typographical errors, make minor clarifications to provisions that might otherwise be confusing, and confirm insurers' broad eligibility to rely on the exemption, consistent with the exemption's clearly intended scope and the analysis and data relied upon in the Department's final regulatory impact analysis (RIA). Thus, for purpose of compliance with Executive Order 12866, with respect to these corrections, the Department directs the attention of interested parties to the Department's complete RIA, which was published on the Department's Web site at the same time that the final rule and exemptions were published in the Federal Register, and which is available at https://www.dol.gov/ebsa/pdf/conflict-of-interest-ria.pdf. Paperwork Reduction Act Statement As part of its continuing effort to reduce paperwork and respondent burden, the Department conducts a preclearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and continuing collections of information in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that the public understands the Department's collection instructions, respondents can provide the requested data in the desired format, reporting burden (time and financial resources) in minimized, collection instructions are clearly understood, and the Department can properly assess the impact of collection requirements on respondents. As discussed above, the Department is issuing technical corrections to its final Best Interest Contract Exemption, which was published in the Federal Register on April 8, 2016 (81 FR 21002). All of the corrections either correct typographical errors, clarify provisions that might otherwise be confusing, or bring the text of the exemption into agreement with the Department's intent, as expressed in the PRA analyses for the final rule and exemptions. The collections of information for the final exemption were approved under OMB control number 1210-0156, which is currently scheduled to expire on June 30, 2019. In FR Doc. 2016-07925, appearing on page 21002 in the Federal Register of Friday, April 8, 2016, the following corrections are made. On pages 21075 through 21085, the Best Interest Contract Exemption is corrected to read as follows: Exemption Section I--Best Interest Contract Exemption (a) In general. ERISA and the Internal Revenue Code prohibit fiduciary advisers to employee benefit plans (Plans) and individual retirement plans (IRAs) from receiving compensation that varies based on their investment advice. Similarly, fiduciary advisers are prohibited from receiving compensation from third parties in connection with their advice. This exemption permits certain persons who provide investment advice to Retirement Investors, and associated Financial Institutions, Affiliates and other Related Entities, to receive such otherwise prohibited compensation as described below. (b) Covered transactions. This exemption permits Advisers, Financial Institutions, and their Affiliates and Related Entities, to receive compensation as a result of their provision of investment advice within the meaning of ERISA section 3(21)(A)(ii) or Code section 4975(e)(3)(B) to a Retirement Investor. As defined in Section VIII(o) of the exemption, a Retirement Investor is: (1) A participant or beneficiary of a Plan with authority to direct the investment of assets in his or her Plan account or to take a distribution; (2) the beneficial owner of an IRA acting on behalf of the IRA; or (3) a Retail Fiduciary with respect to a Plan or IRA. As detailed below, Financial Institutions and Advisers seeking to rely on the exemption must adhere to Impartial Conduct Standards in rendering advice regarding retirement investments. In addition, Financial Institutions must adopt policies and procedures designed to ensure that their individual Advisers adhere to the Impartial Conduct Standards; disclose important information relating to fees, compensation, and Material Conflicts of Interest; and retain records demonstrating compliance with the exemption. Level Fee Fiduciaries that will receive only a Level Fee in connection with advisory or investment management services must comply with more streamlined conditions designed to target the conflicts of interest associated with such services. The exemption provides relief from the restrictions of ERISA section 406(a)(1)(D) and 406(b) and the sanctions imposed by Code section 4975(a) and (b), by reason of Code section 4975(c)(1)(D), (E) and (F). The Adviser and Financial Institution must comply with the applicable conditions of Sections II-V to rely on this exemption. This document also contains separate exemptions in Section VI (Exemption for Purchases and Sales, including Insurance and Annuity Contracts) and Section VII (Exemption for Pre-Existing Transactions). (c) Exclusions. This exemption does not apply if: (1) The Plan is covered by Title I of ERISA, and (i) the Adviser, Financial Institution or any Affiliate is the employer of employees covered by the Plan, or (ii) the Adviser or Financial Institution is a named fiduciary or plan administrator (as defined in ERISA section 3(16)(A)) with respect to the Plan, or an affiliate thereof, that was selected to provide advice to the Plan by a fiduciary who is not Independent; (2) The compensation is received as a result of a Principal Transaction; (3) The compensation is received as a result of investment advice to a Retirement Investor generated solely by an interactive Web site in which computer software-based models or applications provide investment advice based on personal information each investor supplies through the Web site without any personal interaction or advice from an individual Adviser (i.e., ``robo-advice'') unless the robo-advice provider is a Level Fee Fiduciary that complies with the conditions applicable to Level Fee Fiduciaries; or (4) The Adviser has or exercises any discretionary authority or discretionary control with respect to the recommended transaction. Section II--Contract, Impartial Conduct, and Other Requirements The conditions set forth in this section include certain Impartial Conduct Standards, such as a Best Interest Standard, that Advisers and Financial Institutions must satisfy to rely on the exemption. In addition, Section II(d) and (e) requires Financial Institutions to adopt anti-conflict policies and procedures that are reasonably designed to ensure that Advisers adhere to the Impartial Conduct Standards, and requires disclosure of important information about the Financial Institutions' services, applicable fees and compensation. With respect to IRAs and [[Page 44776]] other Plans not covered by Title I of ERISA, the Financial Institutions must agree that they and their Advisers will adhere to the exemption's standards in a written contract that is enforceable by the Retirement Investors. To minimize compliance burdens, the exemption provides that the contract terms may be incorporated into account opening documents and similar commonly-used agreements with new customers, permits reliance on a negative consent process with respect to existing contract holders, and provides a method of meeting the exemption requirement in the event that the Retirement Investor does not open an account with the Adviser but nevertheless acts on the advice through other channels. Advisers and Financial Institutions need not execute the contract before they make a recommendation to the Retirement Investor. However, the contract must cover any advice given prior to the contract date in order for the exemption to apply to such advice. There is no contract requirement for recommendations to Retirement Investors about investments in Plans covered by Title I of ERISA, but the Impartial Conduct Standards and other requirements of Section II(b)-(e), including a written acknowledgment of fiduciary status, must be satisfied in order for relief to be available under the exemption, as set forth in Section II(g). Section II(h) provides conditions for recommendations by Level Fee Fiduciaries, which, with their Affiliates, will receive only a Level Fee in connection with advisory or investment management services with respect to the Plan or IRA assets. Section II(i) provides conditions for referral fees received by banks and bank employees pursuant to Bank Networking Arrangements. Section II imposes the following conditions on Financial Institutions and Advisers: (a) Contracts With Respect to Investments in IRAs and Other Plans Not Covered by Title I of ERISA. If the investment advice concerns an IRA or a Plan that is not covered by Title I of ERISA, the advice is subject to an enforceable written contract on the part of the Financial Institution, which may be a master contract covering multiple recommendations, that is entered into in accordance with this Section II(a) and incorporates the terms set forth in Section II(b)-(d). The Financial Institution additionally must provide the disclosures required by Section II(e). The contract must cover advice rendered prior to the execution of the contract in order for the exemption to apply to such advice and related compensation. (1) Contract Execution and Assent--(i) New Contracts. Prior to or at the same time as the execution of the recommended transaction, the Financial Institution enters into a written contract with the Retirement Investor acting on behalf of the Plan, participant or beneficiary account, or IRA, incorporating the terms required by Section II(b)-(d). The terms of the contract may appear in a standalone document or they may be incorporated into an investment advisory agreement, investment program agreement, account opening agreement, insurance or annuity contract or application, or similar document, or amendment thereto. The contract must be enforceable against the Financial Institution. The Retirement Investor's assent to the contract may be evidenced by handwritten or electronic signatures. (ii) Amendment of Existing Contracts by Negative Consent. As an alternative to executing a contract in the manner set forth in the preceding paragraph, the Financial Institution may amend Existing Contracts to include the terms required in Section II(b)-(d) by delivering the proposed amendment and the disclosure required by Section II(e) to the Retirement Investor prior to January 1, 2018, and considering the failure to terminate the amended contract within 30 days as assent. If the Retirement Investor does terminate the contract within that 30-day period, this exemption will provide relief for 14 days after the date on which the termination is received by the Financial Institution. An Existing Contract is an investment advisory agreement, investment program agreement, account opening agreement, insurance contract, annuity contract, or similar agreement or contract that was executed before January 1, 2018, and remains in effect. If the Financial Institution elects to use the negative consent procedure, it may deliver the proposed amendment by mail or electronically, but it may not impose any new contractual obligations, restrictions, or liabilities on the Retirement Investor by negative consent. (iii) Failure To Enter Into Contract. Notwithstanding a Financial Institution's failure to enter into a contract as required by subsection (i) above with a Retirement Investor who does not have an Existing Contract, this exemption will apply to the receipt of compensation by the Financial Institution, or any Adviser, Affiliate or Related Entity thereof, as a result of the Adviser's or Financial Institution's investment advice to such Retirement Investor regarding an IRA or non-ERISA Plan, provided: (A) The Adviser making the recommendation does not receive compensation, directly or indirectly, that is reasonably attributable to the Retirement Investor's purchase, holding, exchange or sale of the investment; (B) The Financial Institution's policies and procedures prohibit the Financial Institution and its Affiliates and Related Entities from providing compensation to their Advisers in lieu of compensation described in subsection (iii)(A), including, but not limited to bonuses or prizes or other incentives, and the Financial Institution reasonably monitors such policies and procedures; (C) The Adviser and Financial Institution comply with the Impartial Conduct Standards set forth in Section II(c), the policies and procedures requirements of Section II(d) (except for the requirement of a warranty with respect to those policies and procedures), the web disclosure requirements of Section III(b) and, as applicable, the conditions of Sections IV(b)(3)-(6) (Conditions for Advisers and Financial Institution that restrict recommendations, in whole or part, to Proprietary Products or to investments that generate Third Party Payments) with respect to the recommendation; and (D) The Financial Institution's failure to enter into the contract is not part of an effort, attempt, agreement, arrangement or understanding by the Adviser or the Financial Institution designed to avoid compliance with the exemption or enforcement of its conditions, including the contractual conditions set forth in subsections (i) and (ii). (2) Notice. The Financial Institution maintains an electronic copy of the Retirement Investor's contract on its Web site that is accessible by the Retirement Investor. (b) Fiduciary. The Financial Institution affirmatively states in writing that it and the Adviser(s) act as fiduciaries under ERISA or the Code, or both, with respect to any investment advice provided by the Financial Institution or the Adviser subject to the contract or, in the case of an ERISA plan, with respect to any investment recommendations regarding the Plan or participant or beneficiary account. (c) Impartial Conduct Standards. The Financial Institution affirmatively states that it and its Advisers will adhere to the following standards and, they in fact, comply with the standards: (1) When providing investment advice to the Retirement Investor, the Financial [[Page 44777]] Institution and the Adviser(s) provide investment advice that is, at the time of the recommendation, in the Best Interest of the Retirement Investor. As further defined in Section VIII(d), such advice reflects the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor, without regard to the financial or other interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party; (2) The recommended transaction will not cause the Financial Institution, Adviser or their Affiliates or Related Entities to receive, directly or indirectly, compensation for their services that is in excess of reasonable compensation within the meaning of ERISA section 408(b)(2) and Code section 4975(d)(2). (3) Statements by the Financial Institution and its Advisers to the Retirement Investor about the recommended transaction, fees and compensation, Material Conflicts of Interest, and any other matters relevant to a Retirement Investor's investment decisions, will not be materially misleading at the time they are made. (d) Warranties. The Financial Institution affirmatively warrants, and in fact complies with, the following: (1) The Financial Institution has adopted and will comply with written policies and procedures reasonably and prudently designed to ensure that its Advisers adhere to the Impartial Conduct Standards set forth in Section II(c); (2) In formulating its policies and procedures, the Financial Institution has specifically identified and documented its Material Conflicts of Interest; adopted measures reasonably and prudently designed to prevent Material Conflicts of Interest from causing violations of the Impartial Conduct Standards set forth in Section II(c); and designated a person or persons, identified by name, title or function, responsible for addressing Material Conflicts of Interest and monitoring their Advisers' adherence to the Impartial Conduct Standards. (3) The Financial Institution's policies and procedures require that neither the Financial Institution nor (to the best of its knowledge) any Affiliate or Related Entity use or rely upon quotas, appraisals, performance or personnel actions, bonuses, contests, special awards, differential compensation or other actions or incentives that are intended or would reasonably be expected to cause Advisers to make recommendations that are not in the Best Interest of the Retirement Investor. Notwithstanding the foregoing, this Section II(d)(3) does not prevent the Financial Institution, its Affiliates or Related Entities from providing Advisers with differential compensation (whether in type or amount, and including, but not limited to, commissions) based on investment decisions by Plans, participant or beneficiary accounts, or IRAs, to the extent that the Financial Institution's policies and procedures and incentive practices, when viewed as a whole, are reasonably and prudently designed to avoid a misalignment of the interests of Advisers with the interests of the Retirement Investors they serve as fiduciaries (such compensation practices can include differential compensation based on neutral factors tied to the differences in the services delivered to the Retirement Investor with respect to the different types of investments, as opposed to the differences in the amounts of Third Party Payments the Financial Institution receives in connection with particular investment recommendations). (e) Disclosures. In the Best Interest Contract or in a separate single written disclosure provided to the Retirement Investor with the contract, or, with respect to ERISA plans, in another single written disclosure provided to the Plan prior to or at the same time as the execution of the recommended transaction, the Financial Institution clearly and prominently: (1) States the Best Interest standard of care owed by the Adviser and Financial Institution to the Retirement Investor; informs the Retirement Investor of the services provided by the Financial Institution and the Adviser; and describes how the Retirement Investor will pay for services, directly or through Third Party Payments. If, for example, the Retirement Investor will pay through commissions or other forms of transaction-based payments, the contract or writing must clearly disclose that fact; (2) Describes Material Conflicts of Interest; discloses any fees or charges the Financial Institution, its Affiliates, or the Adviser imposes upon the Retirement Investor or the Retirement Investor's account; and states the types of compensation that the Financial Institution, its Affiliates, and the Adviser expect to receive from third parties in connection with investments recommended to Retirement Investors; (3) Informs the Retirement Investor that the Investor has the right to obtain copies of the Financial Institution's written description of its policies and procedures adopted in accordance with Section II(d), as well as the specific disclosure of costs, fees, and compensation, including Third Party Payments, regarding recommended transactions, as set forth in Section III(a), below, described in dollar amounts, percentages, formulas, or other means reasonably designed to present materially accurate disclosure of their scope, magnitude, and nature in sufficient detail to permit the Retirement Investor to make an informed judgment about the costs of the transaction and about the significance and severity of the Material Conflicts of Interest, and describes how the Retirement Investor can get the information, free of charge; provided that if the Retirement Investor's request is made prior to the transaction, the information must be provided prior to the transaction, and if the request is made after the transaction, the information must be provided within 30 business days after the request; (4) Includes a link to the Financial Institution's Web site as required by Section III(b), and informs the Retirement Investor that: (i) Model contract disclosures updated as necessary on a quarterly basis are maintained on the Web site, and (ii) the Financial Institution's written description of its policies and procedures adopted in accordance with Section II(d) are available free of charge on the Web site; (5) Discloses to the Retirement Investor whether the Financial Institution offers Proprietary Products or receives Third Party Payments with respect to any recommended investments; and to the extent the Financial Institution or Adviser limits investment recommendations, in whole or part, to Proprietary Products or investments that generate Third Party Payments, notifies the Retirement Investor of the limitations placed on the universe of investments that the Adviser may offer for purchase, sale, exchange, or holding by the Retirement Investor. The notice is insufficient if it merely states that the Financial Institution or Adviser ``may'' limit investment recommendations based on whether the investments are Proprietary Products or generate Third Party Payments, without specific disclosure of the extent to which recommendations are, in fact, limited on that basis; (6) Provides contact information (telephone and email) for a representative of the Financial Institution that the Retirement Investor can use to contact the Financial [[Page 44778]] Institution with any concerns about the advice or service they have received; and, if applicable, a statement explaining that the Retirement Investor can research the Financial Institution and its Advisers using FINRA's BrokerCheck database or the Investment Adviser Registration Depository (IARD), or other database maintained by a governmental agency or instrumentality, or self-regulatory organization; and (7) Describes whether or not the Adviser and Financial Institution will monitor the Retirement Investor's investments and alert the Retirement Investor to any recommended change to those investments, and, if so monitoring, the frequency with which the monitoring will occur and the reasons for which the Retirement Investor will be alerted. (8) The Financial Institution will not fail to satisfy this Section II(e), or violate a contractual provision based thereon, solely because it, acting in good faith and with reasonable diligence, makes an error or omission in disclosing the required information, provided the Financial Institution discloses the correct information as soon as practicable, but not later than 30 days after the date on which it discovers or reasonably should have discovered the error or omission. To the extent compliance with this Section II(e) requires Advisers and Financial Institutions to obtain information from entities that are not closely affiliated with them, they may rely in good faith on information and assurances from the other entities, as long as they do not know that the materials are incomplete or inaccurate. This good faith reliance applies unless the entity providing the information to the Adviser and Financial Institution is (1) a person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the Adviser or Financial Institution; or (2) any officer, director, employee, agent, registered representative, relative (as defined in ERISA section 3(15)), member of family (as defined in Code section 4975(e)(6)) of, or partner in, the Adviser or Financial Institution. (f) Ineligible Contractual Provisions. Relief is not available under the exemption if a Financial Institution's contract contains the following: (1) Exculpatory provisions disclaiming or otherwise limiting liability of the Adviser or Financial Institution for a violation of the contract's terms; (2) Except as provided in paragraph (f)(4) of this Section, a provision under which the Plan, IRA or Retirement Investor waives or qualifies its right to bring or participate in a class action or other representative action in court in a dispute with the Adviser or Financial Institution, or in an individual or class claim agrees to an amount representing liquidated damages for breach of the contract; provided that, the parties may knowingly agree to waive the Retirement Investor's right to obtain punitive damages or rescission of recommended transactions to the extent such a waiver is permissible under applicable state or federal law; or (3) Agreements to arbitrate or mediate individual claims in venues that are distant or that otherwise unreasonably limit the ability of the Retirement Investors to assert the claims safeguarded by this exemption. (4) In the event that the provision on pre-dispute arbitration agreements for class or representative claims in paragraph (f)(2) of this Section is ruled invalid by a court of competent jurisdiction, this provision shall not be a condition of this exemption with respect to contracts subject to the court's jurisdiction unless and until the court's decision is reversed, but all other terms of the exemption shall remain in effect. (g) ERISA plans. Section II(a) does not apply to recommendations to Retirement Investors regarding investments in Plans that are covered by Title I of ERISA. For such investment advice, relief under the exemption is conditioned upon the Adviser and Financial Institution complying with certain provisions of Section II, as follows: (1) Prior to or at the same time as the execution of the recommended transaction, the Financial Institution provides the Retirement Investor with a written statement of the Financial Institution's and its Advisers' fiduciary status, in accordance with Section II(b). (2) The Financial Institution and the Adviser comply with the Impartial Conduct Standards of Section II(c). (3) The Financial Institution adopts policies and procedures incorporating the requirements and prohibitions set forth in Section II(d)(1)-(3), and the Financial Institution and Adviser comply with those requirements and prohibitions. (4) The Financial Institution provides the disclosures required by Section II(e). (5) The Financial Institution and Adviser do not in any contract, instrument, or communication: purport to disclaim any responsibility or liability for any responsibility, obligation, or duty under Title I of ERISA to the extent the disclaimer would be prohibited by ERISA section 410; purport to waive or qualify the right of the Retirement Investor to bring or participate in a class action or other representative action in court in a dispute with the Adviser or Financial Institution, or require arbitration or mediation of individual claims in locations that are distant or that otherwise unreasonably limit the ability of the Retirement Investors to assert the claims safeguarded by this exemption. (h) Level Fee Fiduciaries. Sections II(a), (d), (e), (f), (g), III and V do not apply to recommendations by Financial Institutions and Advisers that are Level Fee Fiduciaries. For such investment advice, relief under the exemption is conditioned upon the Adviser and Financial Institution complying with certain other provisions of Section II, as follows: (1) Prior to or at the same time as the execution of the recommended transaction, the Financial Institution provides the Retirement Investor with a written statement of the Financial Institution's and its Advisers' fiduciary status, in accordance with Section II(b). (2) The Financial Institution and Adviser comply with the Impartial Conduct Standards of Section II(c). (3)(i) In the case of a recommendation to roll over from an ERISA Plan to an IRA, the Financial Institution documents the specific reason or reasons why the recommendation was considered to be in the Best Interest of the Retirement Investor. This documentation must include consideration of the Retirement Investor's alternatives to a rollover, including leaving the money in his or her current employer's Plan, if permitted, and must take into account the fees and expenses associated with both the Plan and the IRA; whether the employer pays for some or all of the plan's administrative expenses; and the different levels of services and investments available under each option; and (ii) in the case of a recommendation to rollover from another IRA or to switch from a commission-based account to a level fee arrangement, the Level Fee Fiduciary documents the reasons that the arrangement is considered to be in the Best Interest of the Retirement Investor, including, specifically, the services that will be provided for the fee. (i) Bank Networking Arrangements. An Adviser who is a bank employee, and a Financial Institution that is a bank or similar financial institution supervised by the United States or a state, or a savings association (as defined in section 3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(1)), may receive compensation pursuant to a Bank Networking [[Page 44779]] Arrangement as defined in Section VIII(c), in connection with their provision of investment advice to a Retirement Investor, provided the investment advice adheres to the Impartial Conduct Standards set forth in Section II(c). The remaining conditions of the exemption do not apply. Section III--Web and Transaction-Based Disclosure The Financial Institution must satisfy the following conditions with respect to an investment recommendation, to be covered by this exemption: (a) Transaction Disclosure. The Financial Institution provides the Retirement Investor, prior to or at the same time as the execution of the recommended investment in an investment product, the following disclosure, clearly and prominently, in a single written document, that: (1) States the Best Interest standard of care owed by the Adviser and Financial Institution to the Retirement Investor; and describes any Material Conflicts of Interest; (2) Informs the Retirement Investor that the Retirement Investor has the right to obtain copies of the Financial Institution's written description of its policies and procedures adopted in accordance with Section II(d), as well as specific disclosure of costs, fees and other compensation including Third Party Payments regarding recommended transactions. The costs, fees, and other compensation may be described in dollar amounts, percentages, formulas, or other means reasonably designed to present materially accurate disclosure of their scope, magnitude, and nature in sufficient detail to permit the Retirement Investor to make an informed judgment about the costs of the transaction and about the significance and severity of the Material Conflicts of Interest. The information required under this Section must be provided to the Retirement Investor prior to the transaction, if requested prior to the transaction, and, if the request is made after the transaction, the information must be provided within 30 business days after the request; and (3) Includes a link to the Financial Institution's Web site as required by Section III(b) and informs the Retirement Investor that: (i) Model contract disclosures or other model notices, updated as necessary on a quarterly basis, are maintained on the Web site, and (ii) the Financial Institution's written description of its policies and procedures as required under Section III(b)(1)(iv) are available free of charge on the Web site. (4) These disclosures do not have to be repeated for subsequent recommendations by the Adviser and Financial Institution of the same investment product within one year of the provision of the contract disclosure in Section II(e) or a previous disclosure pursuant to this Section III(a), unless there are material changes in the subject of the disclosure. (b) Web Disclosure. For relief to be available under the exemption for any investment recommendation, the conditions of Section III(b) must be satisfied. (1) The Financial Institution maintains a Web site, freely accessible to the public and updated no less than quarterly, which contains: (i) A discussion of the Financial Institution's business model and the Material Conflicts of Interest associated with that business model; (ii) A schedule of typical account or contract fees and service charges; (iii) A model contract or other model notice of the contractual terms (if applicable) and required disclosures described in Section II(b)-(e), which are reviewed for accuracy no less frequently than quarterly and updated within 30 days if necessary; (iv) A written description of the Financial Institution's policies and procedures that accurately describes or summarizes key components of the policies and procedures relating to conflict-mitigation and incentive practices in a manner that permits Retirement Investors to make an informed judgment about the stringency of the Financial Institution's protections against conflicts of interest; (v) To the extent applicable, a list of all product manufacturers and other parties with whom the Financial Institution maintains arrangements that provide Third Party Payments to either the Adviser or the Financial Institution with respect to specific investment products or classes of investments recommended to Retirement Investors; a description of the arrangements, including a statement on whether and how these arrangements impact Adviser compensation, and a statement on any benefits the Financial Institution provides to the product manufacturers or other parties in exchange for the Third Party Payments; (vi) Disclosure of the Financial Institution's compensation and incentive arrangements with Advisers including, if applicable, any incentives (including both cash and non-cash compensation or awards) to Advisers for recommending particular product manufacturers, investments or categories of investments to Retirement Investors, or for Advisers to move to the Financial Institution from another firm or to stay at the Financial Institution, and a full and fair description of any payout or compensation grids, but not including information that is specific to any individual Adviser's compensation or compensation arrangement. (vii) The Web site may describe the above arrangements with product manufacturers, Advisers, and others by reference to dollar amounts, percentages, formulas, or other means reasonably calculated to present a materially accurate description of the arrangements. Similarly, the Web site may group disclosures based on reasonably-defined categories of investment products or classes, product manufacturers, Advisers, and arrangements, and it may disclose reasonable ranges of values, rather than specific values, as appropriate. But, however constructed, the Web site must fairly disclose the scope, magnitude, and nature of the compensation arrangements and Material Conflicts of Interest in sufficient detail to permit visitors to the Web site to make an informed judgment about the significance of the compensation practices and Material Conflicts of Interest with respect to transactions recommended by the Financial Institution and its Advisers. (2) To the extent the information required by this Section is provided in other disclosures which are made public, including those required by the SEC and/or the Department such as a Form ADV, Part II, the Financial Institution may satisfy this Section III(b) by posting such disclosures to its Web site with an explanation that the information can be found in the disclosures and a link to where it can be found. (3) The Financial Institution is not required to disclose information pursuant to this Section III(b) if such disclosure is otherwise prohibited by law. (4) In addition to providing the written description of the Financial Institution's policies and procedures on its Web site, as required under Section III(b)(1)(iv), Financial Institutions must provide their complete policies and procedures adopted pursuant to Section II(d) to the Department upon request. (5) In the event that a Financial Institution determines to group disclosures as described in subsection (1)(vii), it must retain the data and documentation supporting the group disclosure during the time that it is applicable to the disclosure on the Web site, and for six years after that, and make the data and documentation [[Page 44780]] available to the Department within 90 days of the Department's request. (c)(1) The Financial Institution will not fail to satisfy the conditions in this Section III solely because it, acting in good faith and with reasonable diligence, makes an error or omission in disclosing the required information, or if the Web site is temporarily inaccessible, provided that, (i) in the case of an error or omission on the Web site, the Financial Institution discloses the correct information as soon as practicable, but not later than seven (7) days after the date on which it discovers or reasonably should have discovered the error or omission, and (ii) in the case of an error or omission with respect to the transaction disclosure, the Financial Institution discloses the correct information as soon as practicable, but not later than 30 days after the date on which it discovers or reasonably should have discovered the error or omission. (2) To the extent compliance with the Section III disclosures requires Advisers and Financial Institutions to obtain information from entities that are not closely affiliated with them, they may rely in good faith on information and assurances from the other entities, as long as they do not know that the materials are incomplete or inaccurate. This good faith reliance applies unless the entity providing the information to the Adviser and Financial Institution is (i) a person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the Adviser or Financial Institution; or (ii) any officer, director, employee, agent, registered representative, relative (as defined in ERISA section 3(15)), member of family (as defined in Code section 4975(e)(6)) of, or partner in, the Adviser or Financial Institution. (3) The good faith provisions of this Section apply to the requirement that the Financial Institution retain the data and documentation supporting the group disclosure during the time that it is applicable to the disclosure on the Web site and provide it to the Department upon request, as set forth in subsection (b)(1)(vii) and (b)(5) above. In addition, if such records are lost or destroyed, due to circumstances beyond the control of the Financial Institution, then no prohibited transaction will be considered to have occurred solely on the basis of the unavailability of those records; and no party, other than the Financial Institution responsible for complying with subsection (b)(1)(vii) and (b)(5) will be subject to the civil penalty that may be assessed under ERISA section 502(i) or the taxes imposed by Code section 4975(a) and (b), if applicable, if the records are not maintained or provided to the Department within the required timeframes. Section IV--Proprietary Products and Third Party Payments (a) General. A Financial Institution that at the time of the transaction restricts Advisers' investment recommendations, in whole or part, to Proprietary Products or to investments that generate Third Party Payments, may rely on this exemption provided all the applicable conditions of the exemption are satisfied. (b) Satisfaction of the Best Interest standard. A Financial Institution that limits Advisers' investment recommendations, in whole or part, based on whether the investments are Proprietary Products or generate Third Party Payments, and an Adviser making recommendations subject to such limitations, shall be deemed to satisfy the Best Interest standard of Section VIII(d) if: (1) Prior to or at the same time as the execution of the recommended transaction, the Retirement Investor is clearly and prominently informed in writing that the Financial Institution offers Proprietary Products or receives Third Party Payments with respect to the purchase, sale, exchange, or holding of recommended investments; and the Retirement Investor is informed in writing of the limitations placed on the universe of investments that the Adviser may recommend to the Retirement Investor. The notice is insufficient if it merely states that the Financial Institution or Adviser ``may'' limit investment recommendations based on whether the investments are Proprietary Products or generate Third Party Payments, without specific disclosure of the extent to which recommendations are, in fact, limited on that basis; (2) Prior to or at the same time as the execution of the recommended transaction, the Retirement Investor is fully and fairly informed in writing of any Material Conflicts of Interest that the Financial Institution or Adviser have with respect to the recommended transaction, and the Adviser and Financial Institution comply with the disclosure requirements set forth in Section III above (providing for web and transaction-based disclosure of costs, fees, compensation, and Material Conflicts of Interest); (3) The Financial Institution documents in writing its limitations on the universe of recommended investments; documents in writing the Material Conflicts of Interest associated with any contract, agreement, or arrangement providing for its receipt of Third Party Payments or associated with the sale or promotion of Proprietary Products; documents in writing any services it will provide to Retirement Investors in exchange for Third Party Payments, as well as any services or consideration it will furnish to any other party, including the payor, in exchange for the Third Party Payments; reasonably concludes that the limitations on the universe of recommended investments and Material Conflicts of Interest will not cause the Financial Institution or its Advisers to receive compensation in excess of reasonable compensation for Retirement Investors as set forth in Section II(c)(2); reasonably determines, after consideration of the policies and procedures established pursuant to Section II(d), that these limitations and Material Conflicts of Interest will not cause the Financial Institution or its Advisers to recommend imprudent investments; and documents in writing the bases for its conclusions; (4) The Financial Institution adopts, monitors, implements, and adheres to policies and procedures and incentive practices that meet the terms of Section II(d)(1) and (2); and, in accordance with Section II(d)(3), neither the Financial Institution nor (to the best of its knowledge) any Affiliate or Related Entity uses or relies upon quotas, appraisals, performance or personnel actions, bonuses, contests, special awards, differential compensation or other actions or incentives that are intended or would reasonably be expected to cause the Adviser to make imprudent investment recommendations, to subordinate the interests of the Retirement Investor to the Adviser's own interests, or to make recommendations based on the Adviser's considerations of factors or interests other than the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor; (5) At the time of the recommendation, the amount of compensation and other consideration reasonably anticipated to be paid, directly or indirectly, to the Adviser, Financial Institution, or their Affiliates or Related Entities for their services in connection with the recommended transaction is not in excess of reasonable compensation within the meaning of ERISA section 408(b)(2) and Code section 4975(d)(2); and (6) The Adviser's recommendation reflects the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such [[Page 44781]] matters would use in the conduct of an enterprise of a like character and with like aims, based on the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor; and the Adviser's recommendation is not based on the financial or other interests of the Adviser or on the Adviser's consideration of any factors or interests other than the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor. Section V--Disclosure to the Department and Recordkeeping This Section establishes record retention and disclosure conditions that a Financial Institution must satisfy for the exemption to be available for compensation received in connection with recommended transactions. (a) EBSA Disclosure. Before receiving compensation in reliance on the exemption in Section I, the Financial Institution notifies the Department of its intention to rely on this exemption. The notice will remain in effect until revoked in writing by the Financial Institution. The notice need not identify any Plan or IRA. The notice must be provided by email to [email protected]. (b) Recordkeeping. The Financial Institution maintains for a period of six (6) years, in a manner that is reasonably accessible for examination, the records necessary to enable the persons described in paragraph (c) of this Section to determine whether the conditions of this exemption have been met with respect to a transaction, except that: (1) If such records are lost or destroyed, due to circumstances beyond the control of the Financial Institution, then no prohibited transaction will be considered to have occurred solely on the basis of the unavailability of those records; and (2) No party, other than the Financial Institution responsible for complying with this paragraph (c), will be subject to the civil penalty that may be assessed under ERISA section 502(i) or the taxes imposed by Code section 4975(a) and (b), if applicable, if the records are not maintained or are not available for examination as required by paragraph (c), below. (c)(1) Except as provided in paragraph (c)(2) of this Section or precluded by 12 U.S.C. 484, and notwithstanding any provisions of ERISA section 504(a)(2) and (b), the records referred to in paragraph (b) of this Section are reasonably available at their customary location for examination during normal business hours by: (i) Any authorized employee or representative of the Department or the Internal Revenue Service; (ii) Any fiduciary of a Plan that engaged in an investment transaction pursuant to this exemption, or any authorized employee or representative of such fiduciary; (iii) Any contributing employer and any employee organization whose members are covered by a Plan described in paragraph (c)(1)(ii), or any authorized employee or representative of these entities; or (iv) Any participant or beneficiary of a Plan described in paragraph (c)(1)(ii), IRA owner, or the authorized representative of such participant, beneficiary or owner; and (2) None of the persons described in paragraph (c)(1)(ii)-(iv) of this Section are authorized to examine records regarding a recommended transaction involving another Retirement Investor, privileged trade secrets or privileged commercial or financial information of the Financial Institution, or information identifying other individuals. (3) Should the Financial Institution refuse to disclose information on the basis that the information is exempt from disclosure, the Financial Institution must, by the close of the thirtieth (30th) day following the request, provide a written notice advising the requestor of the reasons for the refusal and that the Department may request such information. (4) Failure to maintain the required records necessary to determine whether the conditions of this exemption have been met will result in the loss of the exemption only for the transaction or transactions for which records are missing or have not been maintained. It does not affect the relief for other transactions. Section VI--Exemption for Purchases and Sales, Including Insurance and Annuity Contracts (a) In general. In addition to prohibiting fiduciaries from receiving compensation from third parties and compensation that varies based on their investment advice, ERISA and the Internal Revenue Code prohibit the purchase by a Plan, participant or beneficiary account, or IRA of an investment product, including insurance or annuity product from an insurance company that is a service provider to the Plan or IRA. This exemption permits a Plan, participant or beneficiary account, or IRA to engage in a purchase or sale with a Financial Institution that is a service provider or other party in interest or disqualified person to the Plan or IRA. This exemption is provided because investment transactions often involve prohibited purchases and sales involving entities that have a pre-existing party in interest relationship to the Plan or IRA. (b) Covered transactions. The restrictions of ERISA section 406(a)(1)(A) and (D), and the sanctions imposed by Code section 4975(a) and (b), by reason of Code section 4975(c)(1)(A) and (D), shall not apply to the purchase or sale of an investment product by a Plan, participant or beneficiary account, or IRA, with a Financial Institution that is a party in interest or disqualified person. (c) The following conditions are applicable to this exemption: (1) The transaction is effected by the Financial Institution in the ordinary course of its business; (2) The compensation, direct or indirect, for any services rendered by the Financial Institution and its Affiliates and Related Entities is not in excess of reasonable compensation within the meaning of ERISA section 408(b)(2) and Code section 4975(d)(2); and (3) The terms of the transaction are at least as favorable to the Plan, participant or beneficiary account, or IRA as the terms generally available in an arm's length transaction with an unrelated party. (d) Exclusions, The exemption in this Section VI does not apply if: (1) The Plan is covered by Title I of ERISA and (i) the Adviser, Financial Institution or any Affiliate is the employer of employees covered by the Plan, or (ii) the Adviser and Financial Institution is a named fiduciary or plan administrator (as defined in ERISA section 3(16)(A)) with respect to the Plan, or an affiliate thereof, that was selected to provide advice to the plan by a fiduciary who is not Independent. (2) The compensation is received as a result of a Principal Transaction; (3) The compensation is received as a result of investment advice to a Retirement Investor generated solely by an interactive Web site in which computer software-based models or applications provide investment advice based on personal information each investor supplies through the Web site without any personal interaction or advice from an individual Adviser (i.e., ``robo-advice'') unless the robo-advice provider is a Level Fee Fiduciary that complies with the conditions applicable to Level Fee Fiduciaries; or (4) The Adviser has or exercises any discretionary authority or discretionary control with respect to the recommended transaction. [[Page 44782]] Section VII--Exemption for Pre-Existing Transactions (a) In general. ERISA and the Internal Revenue Code prohibit Advisers, Financial Institutions and their Affiliates and Related Entities from receiving compensation that varies based on their investment advice. Similarly, fiduciary advisers are prohibited from receiving compensation from third parties in connection with their advice. Some Advisers and Financial Institutions did not consider themselves fiduciaries within the meaning of 29 CFR 2510-3.21 before the applicability date of the amendment to 29 CFR 2510-3.21 (the Applicability Date). Other Advisers and Financial Institutions entered into transactions involving Plans, participant or beneficiary accounts, or IRAs before the Applicability Date, in accordance with the terms of a prohibited transaction exemption that has since been amended. This exemption permits Advisers, Financial Institutions, and their Affiliates and Related Entities, to receive compensation, such as 12b-1 fees, in connection with a Plan's, participant or beneficiary account's or IRA's purchase, sale, exchange, or holding of securities or other investment property that was acquired prior to the Applicability Date, as described and limited below. (b) Covered transaction. Subject to the applicable conditions described below, the restrictions of ERISA section 406(a)(1)(A), 406(a)(1)(D), and 406(b) and the sanctions imposed by Code section 4975(a) and (b), by reason of Code section 4975(c)(1)(A), (D), (E) and (F), shall not apply to the receipt of compensation by an Adviser, Financial Institution, and any Affiliate and Related Entity, as a result of investment advice (including advice to hold) provided to a Plan, participant or beneficiary or IRA owner in connection with the purchase, holding, sale, or exchange of securities or other investment property (i) that was acquired before the Applicability Date, or (ii) that was acquired pursuant to a recommendation to continue to adhere to a systematic purchase program established before the Applicability Date. This Exemption for Pre-Existing Transactions is conditioned on the following: (1) The compensation is received pursuant to an agreement, arrangement or understanding that was entered into prior to the Applicability Date and that has not expired or come up for renewal post-Applicability Date; (2) The purchase, exchange, holding or sale of the securities or other investment property was not otherwise a non-exempt prohibited transaction pursuant to ERISA section 406 and Code section 4975 on the date it occurred; (3) The compensation is not received in connection with the Plan's, participant or beneficiary account's or IRA's investment of additional amounts in the previously acquired investment vehicle; except that for avoidance of doubt, the exemption does apply to a recommendation to exchange investments within a mutual fund family or variable annuity contract pursuant to an exchange privilege or rebalancing program that was established before the Applicability Date, provided that the recommendation does not result in the Adviser and Financial Institution, or their Affiliates or Related Entities, receiving more compensation (either as a fixed dollar amount or a percentage of assets) than they were entitled to receive prior to the Applicability Date; (4) The amount of the compensation paid, directly or indirectly, to the Adviser, Financial Institution, or their Affiliates or Related Entities in connection with the transaction is not in excess of reasonable compensation within the meaning of ERISA section 408(b)(2) and Code section 4975(d)(2); and (5) Any investment recommendations made after the Applicability Date by the Financial Institution or Adviser with respect to the securities or other investment property reflect the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor, and are made without regard to the financial or other interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party. Section VIII--Definitions For purposes of these exemptions: (a) ``Adviser'' means an individual who: (1) Is a fiduciary of the Plan or IRA by reason of the provision of investment advice described in ERISA section 3(21)(A)(ii) or Code section 4975(e)(3)(B), or both, and the applicable regulations, with respect to the assets of the Plan or IRA involved in the recommended transaction; (2) Is an employee, independent contractor, agent, or registered representative of a Financial Institution; and (3) Satisfies the federal and state regulatory and licensing requirements of insurance, banking, and securities laws with respect to the covered transaction, as applicable. (b) ``Affiliate'' of an Adviser or Financial Institution means-- (1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the Adviser or Financial Institution. For this purpose, ``control'' means the power to exercise a controlling influence over the management or policies of a person other than an individual; (2) Any officer, director, partner, employee, or relative (as defined in ERISA section 3(15)), of the Adviser or Financial Institution; and (3) Any corporation or partnership of which the Adviser or Financial Institution is an officer, director, or partner. (c) A ``Bank Networking Arrangement'' is an arrangement for the referral of retail non-deposit investment products that satisfies applicable federal banking, securities and insurance regulations, under which employees of a bank refer bank customers to an unaffiliated investment adviser registered under the Investment Advisers Act of 1940 or under the laws of the state in which the adviser maintains its principal office and place of business, insurance company qualified to do business under the laws of a state, or broker or dealer registered under the Securities Exchange Act of 1934, as amended. For purposes of this definition, a ``bank'' is a bank or similar financial institution supervised by the United States or a state, or a savings association (as defined in section 3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(1)), (d) Investment advice is in the ``Best Interest'' of the Retirement Investor when the Adviser and Financial Institution providing the advice act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor, without regard to the financial or other interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party. Financial Institutions that limit investment recommendations, in whole or part, based on whether the investments are Proprietary Products or generate Third Party Payments, and [[Page 44783]] Advisers making recommendations subject to such limitations are deemed to satisfy the Best Interest standard when they comply with the conditions of Section IV(b). (e) ``Financial Institution'' means an entity that employs the Adviser or otherwise retains such individual as an independent contractor, agent or registered representative and that is: (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 adviser maintains its principal office and place of business; (2) A bank or similar financial institution supervised by the United States or a state, or a savings association (as defined in section 3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(1)); (3) An insurance company qualified to do business under the laws of a state, provided that such insurance company: (i) Has obtained a Certificate of Authority from the insurance commissioner of its domiciliary state which has neither been revoked nor suspended, (ii) Has undergone and shall continue to undergo an examination by an Independent certified public accountant for its last completed taxable year or has undergone a financial examination (within the meaning of the law of its domiciliary state) by the state's insurance commissioner within the preceding 5 years, and (iii) Is domiciled in a state whose law requires that actuarial review of reserves be conducted annually and reported to the appropriate regulatory authority; (4) A broker or dealer registered under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); or (5) An entity that is described in the definition of Financial Institution in an individual exemption granted by the Department under ERISA section 408(a) and Code section 4975(c), after the date of this exemption, that provides relief for the receipt of compensation in connection with investment advice provided by an investment advice fiduciary, under the same conditions as this class exemption. (f) ``Independent'' means a person that: (1) Is not the Adviser, the Financial Institution or any Affiliate relying on the exemption; (2) Does not have a relationship to or an interest in the Adviser, the Financial Institution or Affiliate that might affect the exercise of the person's best judgment in connection with transactions described in this exemption; and (3) Does not receive or is not projected to receive within the current federal income tax year, compensation or other consideration for his or her own account from the Adviser, Financial Institution or Affiliate in excess of 2% of the person's annual revenues based upon its prior income tax year. (g) ``Individual Retirement Account'' or ``IRA'' means any account or annuity described in Code section 4975(e)(1)(B) through (F), including, for example, an individual retirement account described in section 408(a) of the Code and a health savings account described in section 223(d) of the Code. (h) A Financial Institution and Adviser are ``Level Fee Fiduciaries'' if the only fee received by the Financial Institution, the Adviser and any Affiliate in connection with advisory or investment management services to the Plan or IRA assets is a Level Fee that is disclosed in advance to the Retirement Investor. A ``Level Fee'' is a fee or compensation that is provided on the basis of a fixed percentage of the value of the assets or a set fee that does not vary with the particular investment recommended, rather than a commission or other transaction-based fee. (i) A ``Material Conflict of Interest'' exists when an Adviser or Financial Institution has a financial interest that a reasonable person would conclude could affect the exercise of its best judgment as a fiduciary in rendering advice to a Retirement Investor. (j) ``Plan'' means any employee benefit plan described in section 3(3) of ERISA and any plan described in section 4975(e)(1)(A) of the Code. (k) A ``Principal Transaction'' means a purchase or sale of an investment product if an Adviser or Financial Institution is purchasing from or selling to a Plan, participant or beneficiary account, or IRA on behalf of the Financial Institution's own account or the account of a person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Financial Institution. For purposes of this definition, a Principal Transaction does not include the sale of an insurance or annuity contract, a mutual fund transaction, or a Riskless Principal Transaction as defined in Section VIII(p) below. (l) ``Proprietary Product'' means a product that is managed, issued or sponsored by the Financial Institution or any of its Affiliates. (m) ``Related Entity'' means any entity other than an Affiliate in which the Adviser or Financial Institution has an interest which may affect the exercise of its best judgment as a fiduciary. (n) A ``Retail Fiduciary'' means a fiduciary of a Plan or IRA that is not described in section (c)(1)(i) of the Regulation (29 CFR 2510.3- 21(c)(1)(i)). (o) ``Retirement Investor'' means-- (1) A participant or beneficiary of a Plan subject to Title I of ERISA or described in section 4975(e)(1)(A) of the Code, with authority to direct the investment of assets in his or her Plan account or to take a distribution, (2) The beneficial owner of an IRA acting on behalf of the IRA, or (3) A Retail Fiduciary with respect to a Plan subject to Title I of ERISA or described in section 4975(e)(1)(A) of the Code or IRA. (p) A ``Riskless Principal Transaction'' is a transaction in which a Financial Institution, after having received an order from a Retirement Investor to buy or sell an investment product, purchases or sells the same investment product for the Financial Institution's own account to offset the contemporaneous transaction with the Retirement Investor. (q) ``Third-Party Payments'' include sales charges when not paid directly by the Plan, participant or beneficiary account, or IRA; gross dealer concessions; revenue sharing payments; 12b-1 fees; distribution, solicitation or referral fees; volume-based fees; fees for seminars and educational programs; and any other compensation, consideration or financial benefit provided to the Financial Institution or an Affiliate or Related Entity by a third party as a result of a transaction involving a Plan, participant or beneficiary account, or IRA. Section IX--Transition Period for Exemption (a) In general. ERISA and the Internal Revenue Code prohibit fiduciary advisers to Plans and IRAs from receiving compensation that varies based on their investment advice. Similarly, fiduciary advisers are prohibited from receiving compensation from third parties in connection with their advice. This transition period provides relief from the restrictions of ERISA section 406(a)(1)(D), and 406(b) and the sanctions imposed by Code section 4975(a) and (b) by reason of Code section 4975(c)(1)(D), (E), and (F) for the period from April 10, 2017, to January 1, 2018 (the Transition Period) for Advisers, Financial Institutions, and their Affiliates and Related Entities, to receive such otherwise prohibited compensation subject to the conditions described in Section IX(d). [[Page 44784]] (b) Covered transactions. This provision permits Advisers, Financial Institutions, and their Affiliates and Related Entities to receive compensation as a result of their provision of investment advice within the meaning of ERISA section 3(21)(A)(ii) or Code section 4975(e)(3)(B) to a Retirement Investor, during the Transition Period. (c) Exclusions. This provision does not apply if: (1) The Plan is covered by Title I of ERISA, and (i) the Adviser, Financial Institution or any Affiliate is the employer of employees covered by the Plan, or (ii) the Adviser or Financial Institution is a named fiduciary or plan administrator (as defined in ERISA section 3(16)(A)) with respect to the Plan, or an Affiliate thereof, that was selected to provide advice to the Plan by a fiduciary who is not Independent; (2) The compensation is received as a result of a Principal Transaction; (3) The compensation is received as a result of investment advice to a Retirement Investor generated solely by an interactive Web site in which computer software-based models or applications provide investment advice based on personal information each investor supplies through the Web site without any personal interaction or advice from an individual Adviser (i.e., ``robo-advice''); or (4) The Adviser has or exercises any discretionary authority or discretionary control with respect to the recommended transaction. (d) Conditions. The provision is subject to the following conditions: (1) The Financial Institution and Adviser adhere to the following standards: (i) When providing investment advice to the Retirement Investor, the Financial Institution and the Adviser(s) provide investment advice that is, at the time of the recommendation, in the Best Interest of the Retirement Investor. As further defined in Section VIII(d), such advice reflects the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor, without regard to the financial or other interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party; (ii) The recommended transaction does not cause the Financial Institution, Adviser or their Affiliates or Related Entities to receive, directly or indirectly, compensation for their services that is in excess of reasonable compensation within the meaning of ERISA section 408(b)(2) and Code section 4975(d)(2). (iii) Statements by the Financial Institution and its Advisers to the Retirement Investor about the recommended transaction, fees and compensation, Material Conflicts of Interest, and any other matters relevant to a Retirement Investor's investment decisions, are not materially misleading at the time they are made. (2) Disclosures. The Financial Institution provides to the Retirement Investor, prior to or at the same time as, the execution of the recommended transaction, a single written disclosure, which may cover multiple transactions or all transactions occurring within the Transition Period, that clearly and prominently: (i) Affirmatively states that the Financial Institution and the Adviser(s) act as fiduciaries under ERISA or the Code, or both, with respect to the recommendation; (ii) Sets forth the standards in paragraph (d)(1) of this Section and affirmatively states that it and the Adviser(s) adhered to such standards in recommending the transaction; (iii) Describes the Financial Institution's Material Conflicts of Interest; and (iv) Discloses to the Retirement Investor whether the Financial Institution offers Proprietary Products or receives Third Party Payments with respect to any investment recommendations; and to the extent the Financial Institution or Adviser limits investment recommendations, in whole or part, to Proprietary Products or investments that generate Third Party Payments, notifies the Retirement Investor of the limitations placed on the universe of investment recommendations. The notice is insufficient if it merely states that the Financial Institution or Adviser ``may'' limit investment recommendations based on whether the investments are Proprietary Products or generate Third Party Payments, without specific disclosure of the extent to which recommendations are, in fact, limited on that basis. (v) The disclosure may be provided in person, electronically or by mail. It does not have to be repeated for any subsequent recommendations during the Transition Period. (vi) The Financial Institution will not fail to satisfy this Section IX(d)(2) solely because it, acting in good faith and with reasonable diligence, makes an error or omission in disclosing the required information, provided the Financial Institution discloses the correct information as soon as practicable, but not later than 30 days after the date on which it discovers or reasonably should have discovered the error or omission. To the extent compliance with this Section IX(d)(2) requires Financial Institutions to obtain information from entities that are not closely affiliated with them, they may rely in good faith on information and assurances from the other entities, as long as they do not know, or unless they should have known, that the materials are incomplete or inaccurate. This good faith reliance applies unless the entity providing the information to the Adviser and Financial Institution is (1) a person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the Adviser or Financial Institution; or (2) any officer, director, employee, agent, registered representative, relative (as defined in ERISA section 3(15)), member of family (as defined in Code section 4975(e)(6)) of, or partner in, the Adviser or Financial Institution. (3) The Financial Institution designates a person or persons, identified by name, title or function, responsible for addressing Material Conflicts of Interest and monitoring Advisers' adherence to the Impartial Conduct Standards; and (4) The Financial Institution complies with the recordkeeping requirements of Section V(b) and (c). Signed at Washington, DC. Phyllis C. Borzi, Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2016-16355 Filed 7-7-16; 4:15 pm] BILLING CODE 4510-29-P
![Federal Register / Vol. 81, No. 132 / Monday, July 11, 2016 / Rules and Regulations 44773
used to apply a specified temperature to Internal Revenue Code (the Code), or otherwise give rise to prohibited
the skin surface. both, by reason of providing investment transactions as a result of their advice to
(b) Classification. Class II (special advice, to receive compensation that plan participants and beneficiaries, IRA
controls). The special controls for this may otherwise be prohibited. The owners and certain plan fiduciaries
device are: corrections in this document fix (including small plan sponsors). The
(1) The patient-contacting typographical errors, make minor exemption is subject to protective
components of the device must be clarifications to provisions that might conditions to safeguard the interests of
demonstrated to be biocompatible. otherwise be confusing, and confirm the plans, participants and beneficiaries
(2) Performance testing must insurers’ broad eligibility to rely on the and IRA owners.
demonstrate electromagnetic exemption, consistent with the The Best Interest Contract Exemption
compatibility and electrical safety. exemption’s clearly intended scope and is broadly available for Advisers and
(3) Non-clinical performance testing the analysis and data relied upon in the Financial Institutions that make
must demonstrate that the device Department’s final regulatory impact investment recommendations to retail
performs as intended under anticipated analysis (RIA). ‘‘Retirement Investors,’’ including plan
conditions of use. The following DATES: Issuance date: These technical participants and beneficiaries, IRA
performance characteristics must be corrections are issued July 11, 2016, owners, and non-institutional
evaluated: without further action or notice. fiduciaries (referred to in the exemption
(i) Thermal performance of the device, Applicability date: The Best Interest as ‘‘Retail Fiduciaries’’). As a condition
including maintenance of the target Contract Exemption, as corrected of receiving compensation that would
temperature, must be evaluated under herein, is applicable to transactions otherwise be prohibited under ERISA
simulated use conditions. occurring on or after April 10, 2017. and the Code, the exemption requires
(ii) Mechanical testing to demonstrate Financial Institutions to acknowledge
FOR FURTHER INFORMATION CONTACT:
the device can withstand forces under their fiduciary status and the fiduciary
Brian Shiker or Susan Wilker, Office of status of their Advisers in writing. The
anticipated use conditions.
(iii) Mechanical testing to Exemption Determinations, Employee Financial Institution and Advisers must
demonstrate the device is resistant to Benefits Security Administration, U.S. adhere to enforceable standards of
leakage under anticipated use Department of Labor, (202) 693–8824 fiduciary conduct and fair dealing with
conditions. (this is not a toll-free number). respect to their advice. In the case of
(4) Software verification, validation, SUPPLEMENTARY INFORMATION: IRAs and non-ERISA plans, the
and hazard analysis must be performed. Background exemption requires that the standards
(5) Patient labeling must be provided be set forth in an enforceable contract
to convey information regarding safe use The Best Interest Contract Exemption with the Retirement Investor; the
of the device, including instructions for was granted pursuant to ERISA section exemption permits reliance on a
assembly. 408(a) and Code section 4975(c)(2), and negative consent process for existing
in accordance with the procedures set contract holders. Under the exemption’s
Dated: July 5, 2016. forth in 29 CFR part 2570, subpart B (76
Leslie Kux,
terms, Financial Institutions are not
FR 66637 (October 27, 2011)). It was required to enter into a contract with
Associate Commissioner for Policy. adopted by the Department in ERISA plan investors, but they must
[FR Doc. 2016–16351 Filed 7–8–16; 8:45 am] connection with the publication of a adhere to these same standards of
BILLING CODE 4164–01–P final regulation defining who is a fiduciary conduct, which the investors
fiduciary of an employee benefit plan can effectively enforce pursuant to
under ERISA as a result of giving ERISA sections 502(a)(2) and (3).
DEPARTMENT OF LABOR investment advice to a plan or its Likewise, ‘‘Level Fee’’ Fiduciaries that,
participants or beneficiaries with their Affiliates, receive only a
Employee Benefits Security (Regulation).1 The Regulation also Level Fee in connection with advisory
Administration applies to the definition of a ‘‘fiduciary’’ or investment management services, do
of a plan (including an IRA) under the not have to enter into a contract with
29 CFR Part 2550 Code. Retirement Investors, but they must
[Application No. D–11712; Prohibited
The exemption provides relief from provide a written statement of fiduciary
Transaction Exemption 2016–01] provisions of ERISA and the Code that status, adhere to standards of fiduciary
generally prohibit fiduciaries with conduct, and prepare a written
[ZRIN 1210–ZA25] respect to employee benefit plans and documentation of the reasons for the
individual retirement accounts (IRAs) recommendation.
Best Interest Contract Exemption;
from engaging in self-dealing and
Correction Explanation of Corrections
receiving compensation from third
AGENCY: Employee Benefits Security parties in connection with transactions This document makes technical
Administration (EBSA), U.S. involving the plans and IRAs. The corrections to the Best Interest Contract
Department of Labor. exemption allows entities such as Exemption as described below. In
ACTION: Technical corrections. registered investment advisers, broker- addition, the document adds an
dealers, banks and insurance companies identifier, Prohibited Transaction
SUMMARY: This document makes (referred to in the exemption as Exemption 2016–01, to the heading of
technical corrections to the Department Financial Institutions), and their the Best Interest Contract Exemption.
of Labor’s Best Interest Contract employees, agents and representatives For convenience, the text of the
ehiers on DSK5VPTVN1PROD with RULES
Exemption, which was published in the (referred to as Advisers), that are ERISA corrected exemption is reprinted in its
Federal Register on April 8, 2016. The or Code fiduciaries by reason of the entirety at the conclusion of this
Best Interest Contract Exemption allows provision of investment advice, to document. The preamble to the
certain persons that are fiduciaries receive compensation that may originally granted exemption provides a
under the Employee Retirement Income general overview of the exemption, at 81
Security Act of 1974 (ERISA) or the 1 81 FR 20945 (April 8, 2016). FR 21002.
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![44784 Federal Register / Vol. 81, No. 132 / Monday, July 11, 2016 / Rules and Regulations
(b) Covered transactions. This in excess of reasonable compensation information as soon as practicable, but
provision permits Advisers, Financial within the meaning of ERISA section not later than 30 days after the date on
Institutions, and their Affiliates and 408(b)(2) and Code section 4975(d)(2). which it discovers or reasonably should
Related Entities to receive compensation (iii) Statements by the Financial have discovered the error or omission.
as a result of their provision of Institution and its Advisers to the To the extent compliance with this
investment advice within the meaning Retirement Investor about the Section IX(d)(2) requires Financial
of ERISA section 3(21)(A)(ii) or Code recommended transaction, fees and Institutions to obtain information from
section 4975(e)(3)(B) to a Retirement compensation, Material Conflicts of entities that are not closely affiliated
Investor, during the Transition Period. Interest, and any other matters relevant with them, they may rely in good faith
(c) Exclusions. This provision does to a Retirement Investor’s investment on information and assurances from the
not apply if: decisions, are not materially misleading other entities, as long as they do not
(1) The Plan is covered by Title I of at the time they are made. know, or unless they should have
ERISA, and (i) the Adviser, Financial (2) Disclosures. The Financial known, that the materials are
Institution or any Affiliate is the Institution provides to the Retirement incomplete or inaccurate. This good
employer of employees covered by the Investor, prior to or at the same time as, faith reliance applies unless the entity
Plan, or (ii) the Adviser or Financial the execution of the recommended providing the information to the
Institution is a named fiduciary or plan transaction, a single written disclosure, Adviser and Financial Institution is (1)
administrator (as defined in ERISA which may cover multiple transactions a person directly or indirectly through
section 3(16)(A)) with respect to the or all transactions occurring within the one or more intermediaries, controlling,
Plan, or an Affiliate thereof, that was Transition Period, that clearly and controlled by, or under common control
selected to provide advice to the Plan by prominently: with the Adviser or Financial
a fiduciary who is not Independent; (i) Affirmatively states that the Institution; or (2) any officer, director,
(2) The compensation is received as a Financial Institution and the Adviser(s) employee, agent, registered
result of a Principal Transaction; act as fiduciaries under ERISA or the representative, relative (as defined in
(3) The compensation is received as a Code, or both, with respect to the ERISA section 3(15)), member of family
result of investment advice to a recommendation; (as defined in Code section 4975(e)(6))
Retirement Investor generated solely by (ii) Sets forth the standards in
of, or partner in, the Adviser or
an interactive Web site in which paragraph (d)(1) of this Section and
Financial Institution.
computer software-based models or affirmatively states that it and the
(3) The Financial Institution
applications provide investment advice Adviser(s) adhered to such standards in
designates a person or persons,
based on personal information each recommending the transaction;
(iii) Describes the Financial identified by name, title or function,
investor supplies through the Web site responsible for addressing Material
without any personal interaction or Institution’s Material Conflicts of
Interest; and Conflicts of Interest and monitoring
advice from an individual Adviser (i.e., Advisers’ adherence to the Impartial
‘‘robo-advice’’); or (iv) Discloses to the Retirement
Investor whether the Financial Conduct Standards; and
(4) The Adviser has or exercises any
Institution offers Proprietary Products or (4) The Financial Institution complies
discretionary authority or discretionary
receives Third Party Payments with with the recordkeeping requirements of
control with respect to the
respect to any investment Section V(b) and (c).
recommended transaction.
(d) Conditions. The provision is recommendations; and to the extent the Signed at Washington, DC.
subject to the following conditions: Financial Institution or Adviser limits Phyllis C. Borzi,
(1) The Financial Institution and investment recommendations, in whole Assistant Secretary, Employee Benefits
Adviser adhere to the following or part, to Proprietary Products or Security Administration, U.S. Department of
standards: investments that generate Third Party Labor.
(i) When providing investment advice Payments, notifies the Retirement [FR Doc. 2016–16355 Filed 7–7–16; 4:15 pm]
to the Retirement Investor, the Financial Investor of the limitations placed on the BILLING CODE 4510–29–P
Institution and the Adviser(s) provide universe of investment
investment advice that is, at the time of recommendations. The notice is
the recommendation, in the Best Interest insufficient if it merely states that the DEPARTMENT OF LABOR
of the Retirement Investor. As further Financial Institution or Adviser ‘‘may’’
defined in Section VIII(d), such advice limit investment recommendations Employee Benefits Security
reflects the care, skill, prudence, and based on whether the investments are Administration
diligence under the circumstances then Proprietary Products or generate Third
prevailing that a prudent person acting Party Payments, without specific 29 CFR Part 2550
in a like capacity and familiar with such disclosure of the extent to which [Application No. D–11713; Prohibited
matters would use in the conduct of an recommendations are, in fact, limited on Transaction Exemption 2016–02]
enterprise of a like character and with that basis.
like aims, based on the investment (v) The disclosure may be provided in ZRIN 1210–ZA25
objectives, risk tolerance, financial person, electronically or by mail. It does
circumstances, and needs of the not have to be repeated for any Class Exemption for Principal
Retirement Investor, without regard to subsequent recommendations during Transactions in Certain Assets
the financial or other interests of the the Transition Period. Between Investment Advice
Adviser, Financial Institution or any (vi) The Financial Institution will not Fiduciaries and Employee Benefit
ehiers on DSK5VPTVN1PROD with RULES
Affiliate, Related Entity, or other party; fail to satisfy this Section IX(d)(2) solely Plans and IRAs; Correction
(ii) The recommended transaction because it, acting in good faith and with AGENCY: Employee Benefits Security
does not cause the Financial Institution, reasonable diligence, makes an error or Administration (EBSA), U.S.
Adviser or their Affiliates or Related omission in disclosing the required Department of Labor.
Entities to receive, directly or indirectly, information, provided the Financial
ACTION: Technical corrections.
compensation for their services that is Institution discloses the correct
VerDate Sep<11>2014 13:54 Jul 08, 2016 Jkt 238001 PO 00000 Frm 00026 Fmt 4700 Sfmt 4700 E:\FR\FM\11JYR1.SGM 11JYR1](https://thefederalregister.org/doc/81_FR_44905/page/12.svg)
Document Created: 2016-07-09 00:21:46
Document Modified: 2016-07-09 00:21:46
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Technical corrections. | |
| Contact | Brian Shiker or Susan Wilker, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, (202) 693-8824 (this is not a toll-free number). | |
| FR Citation | 81 FR 44773 |
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