82 FR 12319 - Definition of the Term “Fiduciary”; Conflict of Interest Rule-Retirement Investment Advice; Best Interest Contract Exemption (Prohibited Transaction Exemption 2016-01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (Prohibited Transaction Exemption 2016-02); Prohibited Transaction Exemptions 75-1, 77-4, 80-83, 83-1, 84-24 and 86-128

DEPARTMENT OF LABOR
Employee Benefits Security Administration

Federal Register Volume 82, Issue 40 (March 2, 2017)

This document proposes to extend for 60 days the applicability date defining who is a ``fiduciary'' under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code of 1986 (Code), and the applicability date of related prohibited transaction exemptions including the Best Interest Contract Exemption and amended prohibited transaction exemptions (collectively PTEs) to address questions of law and policy. The final rule, entitled Definition of the Term ``Fiduciary;'' Conflict of Interest Rule--Retirement Investment Advice, was published in the Federal Register on April 8, 2016, became effective on June 7, 2016, and has an applicability date of April 10, 2017. The PTEs also have applicability dates of April 10, 2017. The President by Memorandum to the Secretary of Labor, dated February 3, 2017, directed the Department of Labor to examine whether the final fiduciary rule may adversely affect the ability of Americans to gain access to retirement information and financial advice, and to prepare an updated economic and legal analysis concerning the likely impact of the final rule as part of that examination. This document invites comments on the proposed 60-day delay of the applicability date, on the questions raised in the Presidential Memorandum, and generally on questions of law and policy concerning the final rule and PTEs. The proposed 60-day delay would be effective on the date of publication of a final rule in the Federal Register.

[Federal Register Volume 82, Number 40 (Thursday, March 2, 2017)]
[Proposed Rules]
[Pages 12319-12326]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-04096]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2510

RIN 1210-AB79


Definition of the Term ``Fiduciary''; Conflict of Interest Rule--
Retirement Investment Advice; Best Interest Contract Exemption 
(Prohibited Transaction Exemption 2016-01); Class Exemption for 
Principal Transactions in Certain Assets Between Investment Advice 
Fiduciaries and Employee Benefit Plans and IRAs (Prohibited Transaction 
Exemption 2016-02); Prohibited Transaction Exemptions 75-1, 77-4, 80-
83, 83-1, 84-24 and 86-128

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Proposed rule; extension of applicability date.

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SUMMARY: This document proposes to extend for 60 days the applicability 
date defining who is a ``fiduciary'' under the Employee Retirement 
Income Security Act (ERISA) and the Internal Revenue Code of 1986 
(Code), and the applicability date of related prohibited transaction 
exemptions including the Best Interest Contract Exemption and amended 
prohibited transaction exemptions (collectively PTEs) to address 
questions of law and policy. The final rule, entitled Definition of the 
Term ``Fiduciary;'' Conflict of Interest Rule--Retirement Investment 
Advice, was published in the Federal Register on April 8, 2016, became 
effective on June 7, 2016, and has an applicability date of April 10, 
2017. The PTEs also have applicability dates of April 10, 2017. The 
President by Memorandum to the Secretary of Labor, dated February 3, 
2017, directed the Department of Labor to examine whether the final 
fiduciary rule may adversely affect the ability of Americans to gain 
access to retirement information and financial advice, and to prepare 
an updated economic and legal analysis concerning the likely impact of 
the final rule as part of that examination. This document invites 
comments on the proposed 60-day delay of the applicability date, on the 
questions raised in the Presidential Memorandum, and generally on 
questions of law and policy concerning the final rule and PTEs. The 
proposed 60-day delay would be effective on the date of publication of 
a final rule in the Federal Register.

DATES: Comments on the proposal to extend the applicability dates for 
60 days should be submitted to the Department on or before March 17, 
2017. Comments regarding the examination described in the President's 
Memorandum, generally and with respect to the specific areas described 
below, should be submitted to the Department on or before April 17, 
2017.

FOR FURTHER INFORMATION CONTACT: Luisa Grillo-Chope, Office of 
Regulations and Interpretations, Employee Benefits Security 
Administration (EBSA), (202) 693-8825. (Not a toll-free number).

ADDRESSES: You may submit comments, identified by RIN 1210-AB79, by one 
of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Email: [email protected]. Include RIN 1210-AB79 
in the subject line of the message.
    Mail: Office of Regulations and Interpretations, Employee Benefits 
Security Administration, Room N-5655, U.S. Department of Labor, 200 
Constitution Avenue NW., Washington, DC 20210, Attention: Fiduciary 
Rule Examination.
    Instructions: All submissions must include the agency name and 
Regulatory Identification Number (RIN) for this rulemaking. Persons 
submitting comments electronically are encouraged to submit only by one 
electronic method and not to submit paper copies. Comments will be 
available to the public, without charge, online at www.regulations.gov 
and www.dol.gov/ebsa and at the Public Disclosure Room, Employee 
Benefits Security Administration, U.S. Department of Labor, Suite N-
1513, 200 Constitution Avenue NW., Washington, DC 20210.
    Warning: Do not include any personally identifiable or confidential 
business information that you do not want publicly disclosed. Comments 
are public records and are posted on the Internet as received, and can 
be retrieved by most internet search engines.

SUPPLEMENTARY INFORMATION: 

A. Background

    On April 8, 2016, the Department of Labor (Department) published a 
final regulation defining who is a ``fiduciary'' of an employee benefit 
plan under section 3(21)(A)(ii) of the Employee Retirement Income 
Security Act of 1974 (ERISA or the Act) as a result of giving 
investment advice to a plan or its participants or beneficiaries. The 
final rule also applies to the definition of a ``fiduciary'' of a plan 
(including an individual retirement account (IRA)) under section 
4975(e)(3)(B) of the Internal Revenue Code of 1986 (Code). The final 
rule treats persons who provide investment advice or recommendations 
for a fee or other compensation with respect to assets of a plan or IRA 
as fiduciaries in a wider array of advice relationships than was true 
of the prior regulatory definition (the 1975 Regulation).\1\
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    \1\ The 1975 Regulation was published as a final rule at 40 FR 
50842 (Oct. 31, 1975).
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    On this same date, the Department published two new administrative 
class exemptions from the prohibited transaction provisions of ERISA 
(29 U.S.C. 1106), and the Code (26 U.S.C. 4975(c)(1)), as well as 
amendments to previously granted exemptions. The exemptions and 
amendments (collectively Prohibited Transaction Exemptions or PTEs) 
would allow, subject to appropriate safeguards, certain broker-dealers, 
insurance agents and others that act as investment advice fiduciaries, 
as defined under the final rule, to continue to receive a variety of 
forms of compensation that would otherwise violate prohibited 
transaction rules, triggering excise taxes and civil liability.
    By Memorandum dated February 3, 2017, the President directed the 
Department to conduct an examination of the final rule to determine 
whether the rule may adversely affect the ability of Americans to gain 
access to retirement information and financial advice. As part of this 
examination, the Department was directed to prepare an updated economic 
and legal analysis concerning the likely impact of the final rule, 
which shall consider, among other things:
     Whether the anticipated applicability of the final rule 
has harmed or is likely to harm investors due to a reduction of 
Americans' access to certain retirement savings offerings, retirement 
product structures, retirement savings information, or related 
financial advice;
     Whether the anticipated applicability of the final rule 
has resulted in dislocations or disruptions

[[Page 12320]]

within the retirement services industry that may adversely affect 
investors or retirees; and
     Whether the final rule is likely to cause an increase in 
litigation, and an increase in the prices that investors and retirees 
must pay to gain access to retirement services.
    The President directed that if the Department makes an affirmative 
determination as to any of the above three considerations or the 
Department concludes for any other reason after appropriate review that 
the final rule is inconsistent with the priority of the Administration 
``to empower Americans to make their own financial decisions, to 
facilitate their ability to save for retirement and build the 
individual wealth necessary to afford typical lifetime expenses, such 
as buying a home and paying for college, and to withstand unexpected 
financial emergencies,'' then the Department shall publish for notice 
and comment a proposed rule rescinding or revising the final rule, as 
appropriate and as consistent with law. The President's Memorandum was 
published in the Federal Register on February 7, 2017 at 82 FR 9675.

B. Regulatory Impact Analysis

    The Department is proposing to delay the applicability date of the 
final rule and PTEs for 60 days. The Department invites comments on the 
proposal to extend the applicability date of the final rule and PTEs 
for 60 days.\2\ For this purpose, the comment period will end on March 
17, 2017.
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    \2\ The Department would also treat Interpretative Bulletin 96-1 
as continuing to apply during any extension of the applicability 
date of the final rule.
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    There are approximately 45 days until the applicability date of the 
final rule and the PTEs. The Department believes it may take more time 
than that to complete the examination mandated by the President's 
Memorandum. Additionally, absent an extension of the applicability 
date, if the examination prompts the Department to propose rescinding 
or revising the rule, affected advisers, retirement investors and other 
stakeholders might face two major changes in the regulatory environment 
rather than one. This could unnecessarily disrupt the marketplace, 
producing frictional costs that are not offset by commensurate 
benefits. This proposed 60-day extension of the applicability date aims 
to guard against this risk. The extension would make it possible for 
the Department to take additional steps (such as completing its 
examination, implementing any necessary additional extension(s), and 
proposing and implementing a revocation or revision of the rule) 
without the rule becoming applicable beforehand. In this way, advisers, 
investors and other stakeholders would be spared the risk and expenses 
of facing two major changes in the regulatory environment. The negative 
consequence of avoiding this risk is the potential for retirement 
investor losses from delaying the application of fiduciary standards to 
their advisers.

1. Executive Order 12866 Statement

    This proposed extension of the applicability date of the final rule 
and related exemptions is an economically significant regulatory action 
within the meaning of section 3(f)(1) of Executive Order 12866, because 
it would likely have an effect on the economy of $100 million in at 
least one year. Accordingly, the Department has considered the costs 
and benefits of the proposed extension, and the Office of Management 
and Budget (OMB) has reviewed the proposed extension.
    The Department's regulatory impact analysis (RIA) of the final rule 
and related exemptions predicted that resultant gains for retirement 
investors would justify compliance costs. The analysis estimated a 
portion of the potential gains for IRA investors at between $33 billion 
and $36 billion over the first 10 years. It predicted, but did not 
quantify, additional gains for both IRA and ERISA plan investors. The 
analysis predicted $16 billion in compliance costs over the first 10 
years, $5 billion of which are first-year costs.
    By deferring the rules' and related exemptions' applicability for 
60 days, this proposal could delay its predicted effects, and give the 
Department time to make at least a preliminary determination whether it 
is likely to make significant changes to the rules and exemptions. The 
nature and magnitude of any such delay of the effects is highly 
uncertain, as some variation can be expected in the pace at which firms 
move to comply and mitigate advisory conflicts and at which advisers 
respond to such mitigation and adjust their recommendations to satisfy 
impartial conduct standards. Notwithstanding this uncertainty, some 
delay of the predicted effects seems likely, and seems likely to 
generate economically significant results. Moreover, the economic 
effects may be partially dependent on what action the Department 
ultimately takes, and in the shorter term, what the public anticipates 
the Department may do. Such delay could lead to losses for retirement 
investors who follow affected recommendations, and these losses could 
continue to accrue until affected investors withdraw affected funds or 
reinvest them pursuant to new recommendations.\3\ As an illustration, a 
60-day delay in the commencement of the potential investor gains 
estimated in the RIA published on April 8, 2016, and referenced above, 
could lead to a reduction in those estimated gains of $147 million in 
the first year and $890 million over 10 years using a three percent 
discount rate. The equivalent annualized estimates are $104 million 
using a three percent discount rate and $87 million using a seven 
percent discount rate.
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    \3\ While losses would cease to accrue after the funds are re-
advised or withdrawn, afterward the losses would not be recovered, 
and would continue to compound, as the accumulated losses would have 
reduced the asset base that is available later for reinvestment or 
spending.
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    The estimates of potential investor losses presented in this 
illustration are derived in the same way as the estimates of potential 
investor gains that were presented in the RIA of the final rule and 
exemptions. Both make use of empirical evidence that front-end-load 
mutual funds that share more of the load with distributing brokers 
attract more flows but perform worse.\4\
---------------------------------------------------------------------------

    \4\ The methodology is detailed in Appendix B of the RIA.
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    Relative to the actual impact of the proposed delay on retirement 
investors, which is unknown, this illustration is uncertain and 
incomplete. The illustration is uncertain because it assumes that the 
final rule and exemptions would entirely eliminate the negative effect 
of load-sharing on mutual fund selection, and that the proposed delay 
would leave that negative effect undiminished for an additional 60 
days. If some of that negative effect would remain under the final 
rule, and/or if market changes in anticipation of the final rule have 
already diminished that negative effect, then the impact of the 
proposed delay would be smaller than illustrated here. The illustration 
is incomplete because it represents only one negative effect (poor 
mutual fund selection) of one source of conflict (load sharing), in one 
market segment (IRA investments in front-load mutual funds). Not 
included are additional potential negative effects of the proposed 
delay that would be associated with other sources of potential 
conflicts, such as revenue sharing, or mark-ups in principal 
transactions, other effects of conflicts such as excessive or poorly 
timed trading, and other market segments susceptible to conflicts such 
as annuity sales to IRA investors and advice rendered to ERISA-covered 
plan

[[Page 12321]]

participants or sponsors. The Department invites comments on these 
points and on the degree to which they may cause the illustration to 
overstate or understate the potential negative effect of the proposed 
delay on retirement investors. And if some entities are subject to the 
current regulation, but might not be subject to the same sort of 
regulation under a revised proposal, the industry might avoid 
additional costs now that would otherwise become sunk costs. A 60-day 
delay could defer or reduce start-up compliance costs, particularly in 
circumstances where more gradual steps toward preparing for compliance 
are less expensive. However, due to lack of systematic evidence on the 
portion of compliance activities that have already been undertaken, 
thus rendering the associated costs sunk, the Department is unable to 
quantify the potential change in start-up costs that would result from 
a delay in the applicability date. The Department requests comment, 
including data that would contribute to estimation of such impacts. 
Beyond start-up costs, the delay would likely relieve industry of 
relevant day-to-day compliance burdens; using the inputs and methods 
that appear in the April 2016 RIA, the Department estimates associated 
savings of $42 million during those 60 days. The equivalent annualized 
values are $8 million using a three percent discount rate and $9 
million using a seven percent discount rate.
    These savings are substantially derived from foregone on-going 
compliance requirements related to the transition notice requirements 
for the Best Interest Contract Exemption, data collection to 
demonstrate satisfaction of fiduciary requirements, and retention of 
data to demonstrate the satisfaction of conditions of the exemption 
during the Transition Period. Estimates are derived from the ``Data 
Collection,'' ``Record Keeping (Data Retention),'' and ``Supervisory, 
Compliance, and Legal Oversight'' categories discussed in section 5.3.1 
of the final RIA and reductions in the number of the transition notices 
that will be delivered.
    The Department also considered the possible impact of a longer 
extension of the applicability date. Under the RIA published on April 
8, 2016, a 180-day delay in the application of the fiduciary standards 
and conditions set forth in the rule and exemptions would reduce the 
same portion of potential investor gains from the rule by $441 million 
in the first year and $2.7 billion over 10 years, while relieving 
industry of 180 days of day-to-day compliance burdens, worth an 
estimated $126 million.
    The costs and benefits of this proposal are highly uncertain, and 
may vary widely depending on several variables, including the eventual 
results of the Department's examination of the final rule and 
exemptions pursuant to the Presidential Memorandum, and the amount of 
time that will be required to complete that review and, if appropriate, 
rescind or revise the rule. The Department invites comments as to 
whether the benefits of the proposed 60-day delay, including the 
potential reduction in transition costs should the Department 
ultimately revise or rescind the final rule, justify its costs, 
including the potential losses to affected retirement investors. The 
Department also invites comments on whether it should delay 
applicability of all, or only part, of the final rule's provisions and 
exemption conditions. For example, under an alternative approach, the 
Department could delay certain aspects (e.g., notice and disclosure 
provisions) while permitting others (e.g., the impartial conduct 
standards set forth in the exemptions) to become applicable on April 
10, 2017. The Department also invites comments regarding whether a 
different delay period would best serve the interests of investors and 
the industry.

2. Paperwork Reduction Act

    The PRA (Pub. L. 104-13) prohibits federal agencies from conducting 
or sponsoring a collection of information from the public without first 
obtaining approval from the Office of Management and Budget (OMB). See 
44 U.S.C. 3507. Additionally, members of the public are not required to 
respond to a collection of information, nor be subject to a penalty for 
failing to respond, unless such collection displays a valid OMB control 
number. See 44 U.S.C. 3512.
    OMB has approved information collections contained in the final 
fiduciary rule and new and amended PTEs. The Department is not 
modifying the substance of the information collection requests (ICRs) 
at this time; therefore, no action under the PRA is required. The 
information collections will become applicable at the same time the 
rule and exemptions become applicable. The information collection 
requirements contained in the final rule and exemptions are discussed 
below.
    Final Rule: The information collections in the final rule are 
approved under OMB Control Number 1210-0155. Paragraph (b)(2)(i) 
requires that certain ``platform providers'' provide disclosure to a 
plan fiduciary. Paragraph (b)(2)(iv)(C) and (D) require asset 
allocation models to contain specific information if they furnish and 
provide certain specified investment educational information. Paragraph 
(c)(1) requires a disclosure to be provided by a person to an 
independent plan fiduciary in certain circumstances for them to be 
deemed not to be an investment advice fiduciary. Finally, paragraph 
(c)(2) requires certain counterparties, clearing members and clearing 
organizations to make a representation to certain parties so they will 
not be deemed to be investment advice fiduciaries regarding certain 
swap transactions required to be cleared under provisions of the Dodd-
Frank Act.
    For a more detailed discussion of the information collections and 
associated burden, see the Department's PRA analysis at 81 FR 20946, 
20994.
    PTE 2016-01, the Best Interest Contract Exemption: The information 
collections in PTE 2016-01, the Best Interest Contract Exemption, are 
approved under OMB Control Number 1210-0156. The exemption requires 
disclosure of material conflicts of interest and basic information 
relating to those conflicts and the advisory relationship (Sections II 
and III), contract disclosures, contracts and written policies and 
procedures (Section II), pre-transaction (or point of sale) disclosures 
(Section III(a)), web-based disclosures (Section III(b)), documentation 
regarding recommendations restricted to proprietary products or 
products that generate third party payments (Section (IV)), notice to 
the Department of a Financial Institution's intent to rely on the 
exemption, and maintenance of records necessary to prove that the 
conditions of the exemption have been met (Section V). Finally, Section 
IX provides a transition period under which relief from these 
prohibitions is available for Financial Institutions and advisers 
during the period between the applicability date and January 1, 2018 
(the ``Transition Period''). As a condition of relief during the 
Transition Period, Financial Institutions must provide a disclosure 
with a written statement of fiduciary status and certain other 
information to all retirement investors (in ERISA plans, IRAs, and non-
ERISA plans) prior to or at the same time as the execution of 
recommended transactions. For a more detailed discussion of the 
information collections and associated burden, see the Department's PRA 
analysis at 81 FR 21002, 21071.
    PTE 2016-02, the Prohibited Transaction Exemption for Principal 
Transactions in Certain Assets Between Investment Advice Fiduciaries 
and Employee Benefit Plans and IRAs (Principal Transactions Exemption):

[[Page 12322]]

The information collections in PTE 2016-02, the Principal Transactions 
Exemption, are approved under OMB Control Number 1210-0157. The 
exemption requires Financial Institutions to provide contract 
disclosures and contracts to Retirement Investors (Section II), adopt 
written policies and procedures (Section IV), make disclosures to 
Retirement Investors and on a publicly available Web site (Section IV), 
maintain records necessary to prove they have met the exemption 
conditions (Section V), and provide a transition disclosure to 
Retirement Investors (Section VII).
    For a more detailed discussion of the information collections and 
associated burden, see the Department's PRA analysis at 81 FR 21089, 
21129.
    Amended PTE 75-1: The information collections in Amended PTE 75-1 
are approved under OMB Control Number 1210-0092. Part V, as amended, 
requires that prior to an extension of credit, the plan must receive 
from the fiduciary written disclosure of (i) the rate of interest (or 
other fees) that will apply and (ii) the method of determining the 
balance upon which interest will be charged in the event that the 
fiduciary extends credit to avoid a failed purchase or sale of 
securities, as well as prior written disclosure of any changes to these 
terms. It also requires broker-dealers engaging in the transactions to 
maintain records demonstrating compliance with the conditions of the 
PTE.
    For a more detailed discussion of the information collections and 
associated burden, see the Department's PRA analysis at 81 FR 21139, 
21145. The Department concluded that the ICRs contained in the 
amendments to Part V impose no additional burden on respondents.
    Amended PTE 86-128: The information collections in Amended PTE 86-
128 are approved under OMB Control Number 1210-0059. As amended, 
Section III of the exemption requires Financial Institutions to make 
certain disclosures to plan fiduciaries and owners of managed IRAs in 
order to receive relief from ERISA's and the Code's prohibited 
transaction rules for the receipt of commissions and to engage in 
transactions involving mutual fund shares. Financial Institutions 
relying on either PTE 86-128 or PTE 75-1, as amended, are required to 
maintain records necessary to demonstrate that the conditions of these 
exemptions have been met.
    For a more detailed discussion of the information collections and 
associated burden, see the Department's PRA analysis at 81 FR 21181, 
21199.
    Amended PTE 84-24: The information collections in Amended PTE 84-24 
are approved under OMB Control Number 1210-0158. As amended, Section 
IV(b) of PTE 84-24 requires Financial Institutions to obtain advance 
written authorization from an independent plan fiduciary or IRA holder 
and furnish the independent fiduciary or IRA holder with a written 
disclosure in order to receive commissions in conjunction with the 
purchase of Fixed Rate Annuity Contracts and Insurance Contracts. 
Section IV(c) of PTE 84-24 requires investment company Principal 
Underwriters to obtain approval from an independent fiduciary and 
furnish the independent fiduciary with a written disclosure in order to 
receive commissions in conjunction with the purchase by a plan of 
securities issued by an investment company Principal Underwriter. 
Section V of PTE 84-24, as amended, requires Financial Institutions to 
maintain records necessary to demonstrate that the conditions of the 
exemption have been met.
    For a more detailed discussion of the information collections and 
associated burden, see the Department's PRA analysis at 81 FR 21147, 
21171.

3. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) or any other laws. 
Unless the head of an agency certifies that a proposed rule is not 
likely to have a significant economic impact on a substantial number of 
small entities, section 603 of the RFA requires that the agency present 
an initial regulatory flexibility analysis (IRFA) describing the rule's 
impact on small entities and explaining how the agency made its 
decisions with respect to the application of the rule to small 
entities. Small entities include small businesses, organizations and 
governmental jurisdictions.
    The Department has determined that this rulemaking will have a 
significant economic impact on a substantial number of small entities, 
and hereby provides this IRFA. As noted above, the Department is 
proposing regulatory action to delay the applicability of the final 
fiduciary rule and exemptions. The proposed regulation is intended to 
reduce any unnecessary disruption that could occur in the marketplace 
if the applicability date of the final rule and exemptions occurs while 
the Department examines the final rule and exemptions as directed in 
the Presidential Memorandum.
    The Small Business Administration (SBA) defines a small business in 
the Financial Investments and Related Activities Sector as a business 
with up to $38.5 million in annual receipts. The Department examined 
the dataset obtained from SBA which contains data on the number of 
firms by NAICS codes, including the number of firms in given revenue 
categories. This dataset allowed the Department to estimate the number 
of firms with a given NAICS code that falls below the $38.5 million 
threshold to be considered a small entity by the SBA. However, this 
dataset alone does not provide a sufficient basis for the Department to 
estimate the number of small entities affected by the rule. Not all 
firms within a given NAICS code would be affected by this rule, because 
being an ERISA fiduciary relies on a functional test and is not based 
on industry status as defined by a NAICS code. Further, not all firms 
within a given NAICS code work with ERISA-covered plans and IRAs.
    Over 90 percent of broker-dealers (BDs), registered investment 
advisers (RIAs), insurance companies, agents, and consultants are small 
businesses according to the SBA size standards (13 CFR 121.201). 
Applying the ratio of entities that meet the SBA size standards to the 
number of affected entities, based on the methodology described at 
greater length in the RIA of the final fiduciary duty rule, the 
Department estimates that the number of small entities affected by this 
proposed rule is 2,438 BDs, 16,521 RIAs, 496 insurers, and 3,358 other 
ERISA service providers. For purposes of the RFA, the Department 
continues to consider an employee benefit plan with fewer than 100 
participants to be a small entity. The 2013 Form 5500 filings show 
nearly 595,000 ERISA covered retirement plans with less than 100 
participants.
    Based on the foregoing, the Department estimates that small 
entities would save approximately $38 million in compliance costs due 
to the proposed 60-day delay of the applicability date for the final 
fiduciary rule and exemptions.\5\ These cost savings are substantially 
derived from foregone on-going compliance requirements related to the 
transition notice requirements for the Best Interest Contract 
Exemption, data collection to demonstrate satisfaction of fiduciary 
requirements,

[[Page 12323]]

and retention of data to demonstrate the satisfaction of conditions of 
the exemption during the Transition Period. The Department invites 
comments regarding this assessment.
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    \5\ This estimate includes savings from notice requirements. 
Savings from notice requirements include savings from all firms 
because it is difficult to break out cost savings only from small 
entities as defined by SBA.
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4. Congressional Review Act

    The proposed rule is subject to the Congressional Review Act (CRA) 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and, if finalized, would be transmitted to 
Congress and the Comptroller General for review.

5. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4) requires each Federal agency to prepare a written statement 
assessing the effects of any Federal mandate in a proposed or final 
agency rule that may result in an expenditure of $100 million or more 
(adjusted annually for inflation with the base year 1995) in any one 
year by State, local, and tribal governments, in the aggregate, or by 
the private sector. For purposes of the Unfunded Mandates Reform Act, 
as well as Executive Order 12875, this proposal does not include any 
federal mandate that we expect would result in such expenditures by 
state, local, or tribal governments, or the private sector. The 
Department also does not expect that the proposed rule will have any 
material economic impacts on State, local or tribal governments, or on 
health, safety, or the natural environment.

6. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017. Section 2(a) of 
Executive Order 13771 requires an agency, unless prohibited by law, to 
identify at least two existing regulations to be repealed when the 
agency publicly proposes for notice and comment, or otherwise 
promulgates, a new regulation. In furtherance of this requirement, 
section 2(c) of Executive Order 13771 requires that the new incremental 
costs associated with new regulations shall, to the extent permitted by 
law, be offset by the elimination of existing costs associated with at 
least two prior regulations. OMB's interim guidance, issued on February 
2, 2017, explains that for Fiscal Year 2017 the above requirements only 
apply to each new ``significant regulatory action that imposes costs.'' 
OMB has determined that this proposed rule does not impose costs that 
would trigger the above requirements of Executive Order 13771.

C. Examination of Fiduciary Rule and Exemptions

    As noted above, pursuant to the President's Memorandum, the 
Department is now examining the fiduciary duty rule to determine 
whether it may adversely affect the ability of Americans to gain access 
to retirement information and financial advice. As part of this 
examination, the Department will prepare an updated economic and legal 
analysis concerning the likely impacts of the rule.
    The Department's April 2016 regulatory impact analysis of the final 
rule and related exemptions found that conflicted advice was 
widespread, causing harm to plan and IRA investors, and that disclosing 
conflicts alone would not adequately mitigate the conflicts or remedy 
the harm. The analysis concluded that by extending fiduciary 
protections the new rule would mitigate advisory conflicts and deliver 
gains for retirement investors.
    The analysis cited economic evidence that advisory conflicts erode 
retirement savings. This evidence included:
     Statistical comparisons finding poorer risk-adjusted 
investment performance in more conflicted settings;
     experimental and audit studies revealing problematic 
adviser conduct;
     studies detailing gaps in consumers' financial literacy, 
errors in their financial decision-making, and the inadequacy of 
disclosure as a consumer protection;
     federal agency reports documenting abuse and investors' 
vulnerability;
     a 2015 study by the President's Council of Economic 
Advisers that attributed annual IRA investor losses of $17 billion to 
advisory conflicts;
     economic theory that predicts harmful market failures due 
to the information asymmetries that are present when ordinary investors 
rely on advisers who are far more expert than them, but highly 
conflicted; and
     overseas experience with harmful advisory conflicts and 
responsive reforms.
    The analysis estimated that advisers' conflicts arising from load 
sharing on average cost their IRA customers who invest in front-end-
load mutual funds between 0.5 percent and 1.0 percent annually in 
estimated foregone risk-adjusted returns, which the analysis concluded 
to be due to poor fund selection. The Department estimated that such 
underperformance could cost IRA investors between $95 billion and $189 
billion over the next 10 years. The analysis further estimated that the 
final rule and exemptions would potentially reduce these losses by 
between $33 billion and $36 billion over 10 years. Investors' gains 
were estimated to grow over time, due both to net inflows and 
compounding of returns. According to the analysis, these estimates 
reflect only part of the potential harm from advisers' conflicts and 
the likely benefits of the new rule and exemptions. The analysis 
estimated that complying with the new rule would cost $16 billion over 
ten years, mainly reflecting the cost of consumer protections attached 
to the exemptions. The Department invites comment on whether the 
projected investor gains could be offset by a reduction in consumer 
investment, if consumers have reduced access to retirement savings 
advice as a result of the final rule, and whether there is any evidence 
of such reduction in consumer investment to date.
    With respect to topics now under examination pursuant to the 
President's Memorandum, the analysis anticipated that the rule would 
have large and far-reaching effects on the markets for investment 
advice and investment products. It examined a variety of potential and 
anticipated market impacts. Such market impacts would extend beyond 
direct compliance activities and related costs, and beyond mitigation 
of existing advisory conflicts and associated changes in affected 
investment recommendations. It concluded that the final rule and 
exemptions would move markets toward a more optimal mix of advisory 
services and financial products. The Department invites comments on 
whether the final rule and exemptions so far have moved markets or 
appear likely to move markets in this predicted direction.
    The analysis examined the likely impacts of the final rule and 
exemptions on small investors. It concluded that quality, affordable 
advisory services would be available to small plans and IRA investors 
under the final rule and exemptions. Subsection 8.4.5 reviewed ongoing 
and emerging innovation trends in markets for investment advice and 
investment products. The analysis indicated that these trends have the 
potential to deliver affordable, quality advisory services and 
investment products to all retirement investors, including small 
investors, and that the final rule and exemptions would foster 
competition to innovate in consumers' best interest. The Department 
invites comments on the emerging and expected effects of the final rule 
and exemptions on retirement investors' access to quality, affordable 
investment advice services and investment products, including small 
investors' access.

[[Page 12324]]

    The Department invites comments that might help inform updates to 
its legal and economic analysis, including any issues the public 
believes were inadequately addressed in the RIA and particularly with 
respect to the issues identified in the President's Memorandum.
    For more detailed information, commenters are directed to the final 
rule and final new and amended PTEs published in the Federal Register 
on April 8, 2016, at 81 FR pages 20946 through 21221, and to the 
Department's Full Report Regulatory Impact Analysis for Final Rule and 
Exemptions (RIA), and the additional RIA documents posted on the 
Department's Web site at www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/completed-rulemaking/1210-AB32-2.
    The Department invites comments on market responses to the final 
rule and the PTEs to date, and on the costs and benefits attached to 
such responses. Some relevant questions include,
     Do firms anticipate changes in consumer demand for 
investment advice and investment products? If so, what types of changes 
are anticipated, and how will firms respond?
     Are firms making changes to their target markets? In 
particular, are some firms moving to abandon or deemphasize the small 
IRA investor or small plan market segments? Are some aiming to expand 
in that segment? What effects will these developments have on different 
customer segments, especially small IRA investors and small plans?
     Are firms making changes to their line-ups of investment 
products, and/or to product pricing? What are those changes, what is 
the motivation behind them, and will the changes advance or undermine 
firms' abilities to serve their customers' needs?
     Are firms making changes to their advisory services, and/
or to the pricing of those services? Are firms changing the means by 
which customers pay for advisory services, and by which advisers are 
compensated? For example, are firms moving to increase or reduce their 
use of commission arrangements, asset-based fee arrangements, or other 
arrangements? With respect to any such changes, what is the motivation 
behind them, and will these changes advance or undermine firms' 
abilities to serve their customers' needs?
     Has implementation or anticipation of the rule led 
investors to shift investments between asset classes or types, and/or 
are such changes expected in the future? If so, what mechanisms have 
led or are expected to lead to these changes? How will the changes 
affect investors?
     Has implementation or anticipation of the rule led to 
increases or reductions in commissions, loads, or other fees? Have 
firms changed their minimum balance requirements for either commission-
based or asset-based fee compensation arrangements?
     Has implementation or anticipation of the rule led to 
changes in the compensation arrangements for advisory services 
surrounding the sale of insurance products such as fixed-rate, fixed-
indexed, and variable annuities?
     For those firms that intend to make use of the Best 
Interest Contract Exemption, what specific policies and procedures have 
been considered to mitigate conflicts of interest and ensure 
impartiality? How costly will those policies and procedures be to 
maintain?
     What innovations or changes in the delivery of financial 
advice have occurred that can be at least partially attributable to the 
rule? Will those innovations or changes make retirement investors 
better or worse off?
     What changes have been made to investor education both in 
terms of access and content in response to the rule and PTEs, and to 
what extent have any changes helped or harmed investors?
     Have market developments and preparation efforts since the 
final rule and PTEs were published in April 2016 illuminated whether or 
to what degree the final rule and PTEs are likely to cause an increase 
in litigation, and how any such increase in litigation might affect the 
prices that investors and retirees must pay to gain access to 
retirement services? Have firms taken steps to acquire or increase 
insurance coverage of liability associated with litigation? Have firms 
factored into their earnings projections or otherwise taken specific 
account of such potential liability?
     The Department's examination of the final rule and 
exemptions pursuant to the Presidential Memorandum, together with 
possible resultant actions to rescind or amend the rule, could require 
more time than this proposed 60-day extension would provide. What costs 
and benefit considerations should the Department consider if the 
applicability date is further delayed, for 6 months, a year, or more?
     Class action lawsuits may be brought to redress a variety 
of claims, including claims involving ERISA-covered plans. What can be 
learned from these class action lawsuits? Have they been particularly 
prone to abuse? To what extent have class action lawsuits involving 
ERISA claims led to better or worse outcomes for plan participants? 
What other impacts have these class action lawsuits had?
     Have market developments and preparation efforts since the 
final rule and PTEs were published in April 2016 illuminated particular 
provisions that could be amended to reduce compliance burdens and 
minimize undue disruptions while still accomplishing the regulatory 
objective of establishing an enforceable best interest conduct standard 
for retirement investment advice and empowering Americans to make their 
own financial decisions, save for retirement and build individual 
wealth?
     How has the pattern of market developments and preparation 
efforts occurring since the final rule and exemptions were published in 
April, 2016, compared with the implementation pattern prior to 
compliance deadlines in other jurisdictions, such as the United 
Kingdom, that have instituted new requirements for investment advice? 
What does a comparison of such patterns indicate about the Department's 
prospective estimates of the rule's and exemptions' combined impacts?
     Have there been new insights from or into academic 
literature on contracts or other sources that would aid in the 
quantification of the rule's and exemptions' effectiveness at ensuring 
advisers' adherence to a best interest standard? If so, what are the 
implications for revising the Best Interest Contract Exemption or other 
regulatory or exemptive provisions to more effectively ensure adherence 
to a best interest standard?
     To what extent have the rule's and exemptions' costs 
already been incurred and thus cannot, at this point in time, be 
lessened by regulatory revisions or delays? Can the portion of costs 
that are still avoidable be quantified or otherwise characterized? Are 
the rule's intended effects entirely contingent upon the costs that 
have not yet been incurred, or will some portion be achieved as a 
result of compliance actions already taken? How will they be achieved 
and will they be sustained?
     Have there been changes in the macroeconomy since early 
2016 that would have implications for the rule's and exemptions' 
impacts (for example, a reduction in the unemployment rate, likely 
indicating lower search costs for workers who seek new employment 
within or outside of the financial industry)?
     What do market developments and preparation efforts that 
have occurred since the final rule and exemptions were published in 
April, 2016--or new insights into other available evidence--

[[Page 12325]]

indicate regarding the portion of rule-induced gains to investors that 
consist of benefits to society (most likely, resource savings 
associated with reduced excessive trading and reduced unsuccessful 
efforts to outperform the market) and the portion that consists of 
transfers between entities in society?
     In response to the approaching applicability date of the 
rule, or other factors, has the affected industry already responded in 
such a way that if the rule were rescinded, the regulated community, or 
a subset of it, would continue to abide by the rule's standards? If 
this is the case, would the rule's predicted benefits to consumers, or 
a portion thereof, be retained, regardless of whether the rule were 
rescinded? What could ensure compliance with the standards if they were 
no longer enforceable legal obligations?
    Upon completion of its examination, the Department may decide to 
allow the final rule and PTEs to become applicable, issue a further 
extension of the applicability date, propose to withdraw the rule, or 
propose amendments to the rule and/or the PTEs. In addition to any 
other comments, the Department specifically requests comments on each 
of these possible outcomes. The comment period for the broader purpose 
of examining the final rule and exemptions in response to the 
President's Memorandum will end on April 17, 2017.

List of Proposed Amendments to Prohibited Transaction Exemptions

    For the reasons set forth above, the Department is proposing to 
amend the Best Interest Contract Exemption (Prohibited Transaction 
Exemption 2016-01); Class Exemption for Principal Transactions in 
Certain Assets Between Investment Advice Fiduciaries and Employee 
Benefit Plans and IRAs (Prohibited Transaction Exemption 2016-02); and 
Prohibited Transaction Exemptions 75-1, 77-4, 80-83, 83-1, 84-24 and 
86-128, as follows:
     The Best Interest Contract Exemption (PTE 2016-01) (81 FR 
21002 (April 8, 2016), as corrected at 81 FR 44773 (July 11, 2016)) is 
amended by removing the date ``April 10, 2017'' and adding in its place 
``June 9, 2017'' as the Applicability date in the introductory DATES 
section and in Section IX of the exemption.
     The Class Exemption for Principal Transactions in Certain 
Assets Between Investment Advice Fiduciaries and Employee Benefit Plans 
and IRAs (PTE 2016-02) (81 FR 21089 (April 8, 2016), as corrected at 81 
FR 44784 (July 11, 2016)), is amended by removing the date ``April 10, 
2017'' and adding in its place ``June 9, 2017'' as the Applicability 
date in the introductory DATES section and in Section VII of the 
exemption.
     Prohibited Transaction Exemption 84-24 for Certain 
Transactions Involving Insurance Agents and Brokers, Pension 
Consultants, Insurance Companies, and Investment Company Principal 
Underwriters (49 FR 13208 (April 3, 1984), as corrected 49 FR 24819 
(June 15, 1984), as amended 71 FR 5887 (February 3, 2006), and as 
amended 81 FR 21147 (April 8, 2016)) is amended by removing the date 
``April 10, 2017'' and adding in its place ``June 9, 2017'' as the 
Applicability date in the introductory DATES section.
     Prohibited Transaction Exemption 86-128 for Securities 
Transactions Involving Employee Benefit Plans and Broker-Dealers (51 FR 
41686 (November 18, 1986) as amended at 67 FR 64137 (October 17, 2002) 
and as amended at 81 FR 21181 (April 8, 2016)) and Prohibited 
Transaction Exemption 75-1, Exemptions from Prohibitions Respecting 
Certain Classes of Transactions Involving Employee Benefit Plans and 
Certain Broker-Dealers, Reporting Dealers and Banks, Parts I and II (40 
FR 50845 (October 31, 1975), as amended at 71 FR 5883 (February 3, 
2006), and as amended at 81 FR 21181 (April 8, 2016)) are amended by 
removing the date ``April 10 2017'' and adding in its place ``June 9, 
2017'' as the Applicability date in the introductory DATES section.
     Prohibited Transaction Exemption 75-1, Exemptions from 
Prohibitions Respecting Certain Classes of Transactions Involving 
Employee Benefit Plans and Certain Broker-Dealers, Reporting Dealers 
and Banks, Parts III and IV, (40 FR 50845 (October 31, 1975), as 
amended at 71 FR 5883 (February 3, 2006), and as amended at 81 FR 21208 
(April 8, 2016); Prohibited Transaction Exemption 77-4, Class Exemption 
for Certain Transactions Between Investment Companies and Employee 
Benefit Plans, 42 FR 18732 (April 8, 1977), as amended at 81 FR 21208 
(April 8, 2016); Prohibited Transaction Exemption 80-83, Class 
Exemption for Certain Transactions Involving Purchase of Securities 
Where Issuer May Use Proceeds To Reduce or Retire Indebtedness to 
Parties in Interest, 45 FR 73189 (November 4, 1980), as amended at 67 
FR 9483 (March 1, 2002) and as amended at 81 FR 21208 (April 8, 2016); 
and Prohibited Transaction Exemption 83-1 Class Exemption for Certain 
Transactions Involving Mortgage Pool Investment Trusts, 48 FR 895 
(January 7, 1983), as amended at 67 FR 9483 (March 1, 2002) and as 
amended at 81 FR 21208 (April 8, 2016) are each amended by removing the 
date ``April 10, 2017'' and adding in its place ``June 9, 2017'' as the 
Applicability date in the introductory DATES section.
     Prohibited Transaction Exemption (PTE) 75-1, Exemptions 
from Prohibitions Respecting Certain Classes of Transactions Involving 
Employee Benefit Plans and Certain Broker-Dealers, Reporting Dealers 
and Banks, Part V, 40 FR 50845 (October 31, 1975), as amended at 71 FR 
5883 (February 3, 2006) and as amended at 81 FR 21139 (April 8, 2016), 
is amended by removing the date ``April 10, 2017'' and adding in its 
place ``June 9, 2017'' as the Applicability Date in the introductory 
DATES section.
    This document serves as a notice of pendency before the Department 
of proposed amendments to these PTEs.

List of Subjects in 29 CFR Parts 2510 and 2550

    Employee benefit plans, Exemptions, Fiduciaries, Investments, 
Pensions, Prohibited transactions, Reporting and recordkeeping 
requirements, and Securities.

    For the reasons set forth above, the Department proposes to amend 
part 2510 of subchapter B of Chapter XXV of Title 29 of the Code of 
Federal Regulations as follows:

Subchapter B--Definitions and Coverage Under the Employee Retirement 
Income Security Act of 1974

PART 2510--DEFINITIONS OF TERMS USED IN SUBCHAPTERS C, D, E, F, G, 
AND L OF THIS CHAPTER

0
1. The authority citation for part 2510 continues to read as follows:

    Authority:  29 U.S.C. 1002(2), 1002(21), 1002(37), 1002(38), 
1002(40), 1031, and 1135; Secretary of Labor's Order 1-2011, 77 FR 
1088; Secs. 2510.3-21, 2510.3-101 and 2510.3-102 also issued under 
Sec. 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 237. 
Section 2510.3-38 also issued under Pub. L. 105-72, Sec. 1(b), 111 
Stat. 1457 (1997).


Sec.  2510.3-21   [Amended]

0
2. Section 2510.3-21 is amended by extending the expiration date of 
paragraph (j) to June 9, 2017, and by removing the date ``April 10, 
2017'' and adding in its place ``June 9, 2017'' in paragraphs (h)(2), 
(j)(1) introductory text, and (j)(3).


[[Page 12326]]


    Signed at Washington, DC, this 27th day of February 2017.
Timothy D. Hauser,
Deputy Assistant Secretary for Program Operations, Employee Benefits 
Security Administration, Department of Labor.
[FR Doc. 2017-04096 Filed 3-1-17; 8:45 am]
 BILLING CODE 4510-29-P