82 FR 31278 - Request for Information Regarding the Fiduciary Rule and Prohibited Transaction Exemptions

DEPARTMENT OF LABOR
Employee Benefits Security Administration

Federal Register Volume 82, Issue 128 (July 6, 2017)

The Employee Benefits Security Administration of the U.S. Department of Labor (the Department) is publishing this Request for Information in connection with its examination of the final rule defining who is a ``fiduciary'' of an employee benefit plan for purposes of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code, as a result of giving investment advice for a fee or other compensation with respect to assets of a plan or IRA (Fiduciary Rule or Rule). The examination also includes the new and amended administrative class exemptions from the prohibited transaction provisions of ERISA and the Code that were published in conjunction with the Rule (collectively, the Prohibited Transaction Exemptions or PTEs). This Request for Information specifically seeks public input that could form the basis of new exemptions or changes/revisions to the rule and PTEs, and input regarding the advisability of extending the January 1, 2018, applicability date of certain provisions in the Best Interest Contract Exemption, the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs, and Prohibited Transaction Exemption 84-24.

[Federal Register Volume 82, Number 128 (Thursday, July 6, 2017)]
[Proposed Rules]
[Pages 31278-31281]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-14101]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 82, No. 128 / Thursday, July 6, 2017 / 
Proposed Rules

[[Page 31278]]



DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Parts 2509, 2510, and 2550

RIN 1210-AB82


Request for Information Regarding the Fiduciary Rule and 
Prohibited Transaction Exemptions

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Request for information.

-----------------------------------------------------------------------

SUMMARY: The Employee Benefits Security Administration of the U.S. 
Department of Labor (the Department) is publishing this Request for 
Information in connection with its examination of the final rule 
defining who is a ``fiduciary'' of an employee benefit plan for 
purposes of the Employee Retirement Income Security Act of 1974 and the 
Internal Revenue Code, as a result of giving investment advice for a 
fee or other compensation with respect to assets of a plan or IRA 
(Fiduciary Rule or Rule). The examination also includes the new and 
amended administrative class exemptions from the prohibited transaction 
provisions of ERISA and the Code that were published in conjunction 
with the Rule (collectively, the Prohibited Transaction Exemptions or 
PTEs). This Request for Information specifically seeks public input 
that could form the basis of new exemptions or changes/revisions to the 
rule and PTEs, and input regarding the advisability of extending the 
January 1, 2018, applicability date of certain provisions in the Best 
Interest Contract Exemption, the Class Exemption for Principal 
Transactions in Certain Assets Between Investment Advice Fiduciaries 
and Employee Benefit Plans and IRAs, and Prohibited Transaction 
Exemption 84-24.

DATES: Comments in response to question 1 (relating to extending the 
January 1, 2018, applicability date of certain provisions) should be 
submitted to the Department on or before July 21, 2017. Comments in 
response to all other questions should be submitted to the Department 
on or before August 7, 2017. The Department requests that comments be 
received within these timeframes to ensure their consideration.

ADDRESSES: All written comments should be sent to the Office of 
Exemption Determinations by any of the following methods, identified by 
RIN 1210-AB82:
     Federal eRulemaking Portal: http://www.regulations.gov at 
Docket ID number: EBSA-2017-0004. Follow the instructions for 
submitting comments.
     Email to: [email protected].
     Mail: Office of Exemption Determinations, EBSA, 
(Attention: D-11933), U.S. Department of Labor, 200 Constitution Avenue 
NW., Suite 400, Washington, DC 20210.
     Hand Delivery/Courier: OED, EBSA (Attention: D-11933), 
U.S. Department of Labor, 122 C St. NW., Suite 400, Washington, DC 
20001.
    Comments will be available for public inspection in the Public 
Disclosure Room, EBSA, U.S. Department of Labor, Room N-1513, 200 
Constitution Avenue NW., Washington, DC 20210. Comments will also be 
available online at www.regulations.gov, at Docket ID number: EBSA-
2017-0004 and www.dol.gov/ebsa, at no charge. Do not include personally 
identifiable information or confidential business information that you 
do not want publicly disclosed. Comments online can be retrieved by 
most Internet search engines.

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

SUPPLEMENTARY INFORMATION: On April 8, 2016 (81 FR 20946), the 
Department published the Fiduciary Rule, which defines who is a 
``fiduciary'' of an employee benefit plan under section 3(21)(A)(ii) of 
the Employee Retirement Income Security Act of 1974, as amended 
(ERISA), as a result of giving investment advice to a plan or its 
participants or beneficiaries. The Fiduciary Rule also applies to the 
definition of a ``fiduciary'' of a plan (including an individual 
retirement account (IRA)) under section 4975(e)(3)(B) of the Internal 
Revenue Code of 1986 (Code).
    On the same date, the Department published two new administrative 
class exemptions from the prohibited transaction provisions of ERISA 
(29 U.S.C. 1106) and the Code (26 U.S.C. 4975(c)(1)): The Best Interest 
Contract Exemption (BIC Exemption) (81 FR 21002) and the Class 
Exemption for Principal Transactions in Certain Assets Between 
Investment Advice Fiduciaries and Employee Benefit Plans and IRAs 
(Principal Transactions Exemption) (81 FR 21089), as well as amendments 
to previously granted exemptions (81 FR 21139, 81 FR 21147, and 81 FR 
21208). Among other conditions, the PTEs are generally conditioned on 
adherence to certain Impartial Conduct Standards: providing advice in 
retirement investors' best interest; charging no more than reasonable 
compensation; and avoiding misleading statements (Impartial Conduct 
Standards).
    The Fiduciary Rule and PTEs had an original applicability date of 
April 10, 2017. By Memorandum dated February 3, 2017, the President 
directed the Department to prepare an updated analysis of the likely 
impact of the Fiduciary Rule on access to retirement information and 
financial advice. The President's Memorandum was published in the 
Federal Register on February 7, 2017. 82 FR 9675 (Feb. 7, 2017).
    On March 2, 2017, the Department published a document proposing a 
60-day delay of the applicability date of the Rule and PTEs. It also 
sought public comments on the questions raised in the Presidential 
Memorandum, and generally on questions of law and policy concerning the 
Fiduciary Rule and PTEs.\1\
---------------------------------------------------------------------------

    \1\ 82 FR 12319.
---------------------------------------------------------------------------

    On April 7, 2017, the Department promulgated a final rule extending 
the applicability date of the Fiduciary Rule by 60 days from April 10, 
2017, to June 9, 2017.\2\ It also extended from April 10 to June 9, the 
applicability dates of the BIC Exemption and Principal Transactions 
Exemption, and required investment advice fiduciaries relying on these 
exemptions to adhere only to the Impartial Conduct Standards as 
conditions of those exemptions during a transition period from June 9, 
2017,

[[Page 31279]]

through January 1, 2018.\3\ In this manner, the Department established 
a phased implementation period from June 9, 2017, until January 1, 
2018, during which time the Fiduciary Rule will be applicable, and 
these new exemptions will be available subject to the Impartial Conduct 
Standards only. The final rule further delayed the applicability of 
amendments to an existing exemption, Prohibited Transaction Exemption 
84-24, until January 1, 2018, other than the Impartial Conduct 
Standards, which will become applicable on June 9, 2017. Finally, the 
final rule extended for 60 days, until June 9, 2017, the applicability 
dates of amendments to other previously granted exemptions.\4\
---------------------------------------------------------------------------

    \2\ 82 FR 16902.
    \3\ Id.
    \4\ Id.
---------------------------------------------------------------------------

    On May 22, 2017, the Department issued a temporary enforcement 
policy covering the transition period between June 9, 2017, and January 
1, 2018, during which the Department will not pursue claims against 
investment advice fiduciaries who are working diligently and in good 
faith to comply with their fiduciary duties and to meet the conditions 
of the PTEs, or otherwise treat those investment advice fiduciaries as 
being in violation of their fiduciary duties and not compliant with the 
PTEs.\5\ The Treasury Department and IRS confirmed a similar 
enforcement policy covering excise taxes and related reporting 
obligations with respect to transactions covered by the Department's 
enforcement policy.\6\ The Department also published on May 22 a set of 
FAQs to provide additional information on the transition period from 
June 9, 2017, to January 1, 2018.\7\ The Department noted in both the 
temporary enforcement policy and FAQs that it intended to issue a 
Request for Information (RFI) for additional public input on specific 
ideas for possible new exemptions or regulatory changes based on recent 
public comments and market developments.
---------------------------------------------------------------------------

    \5\ Available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2017-02.
    \6\ Id.
    \7\ Available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/coi-transition-period.pdf.
---------------------------------------------------------------------------

Request for Information

    The Department is in the process of reviewing and analyzing 
comments received in response to its March 2, 2017, request for 
comments on issues raised in the Presidential Memorandum. While the 
Department conducts its ongoing review, it is also interested in 
receiving additional input from the public about possible additional 
exemption approaches or changes to the Fiduciary Rule, as well as 
regarding the advisability of extending the January 1, 2018, 
applicability date of certain provisions in the Best Interest Contract 
Exemption, the Class Exemption for Principal Transactions in Certain 
Assets Between Investment Advice Fiduciaries and Employee Benefit Plans 
and IRAs, and Prohibited Transaction Exemption 84-24.
    Public input on the Fiduciary Duty Rule and PTEs has suggested that 
it may be possible in some instances to build upon recent innovations 
in the financial services industry to create new and more streamlined 
exemptions and compliance mechanisms. For example, one recent 
innovation is the possible development of mutual fund ``clean shares.'' 
\8\ Many firms appear to be considering the use of such ``clean 
shares'' as a long-term solution to the problem of mitigating conflicts 
of interest with respect to mutual funds. Commenters noted, however, 
that funds will need more time to develop clean shares than 
contemplated by the current January 1, 2018, deadlines.
---------------------------------------------------------------------------

    \8\ As described in a 2017 SEC staff interpretive letter, clean 
shares are a class of shares of a mutual fund without any front-end 
load, deferred sales charge, or other asset-based fee for sales or 
distributions. See Capital Group, SEC Staff Letter (Jan. 11, 2017), 
www.sec.gov/divisions/investment/noaction/2017/capital-group-011117-22d.htm.
---------------------------------------------------------------------------

    Commenters also described innovations in other parts of the 
retirement investment industry, such as insurance companies' potential 
development of fee-based annuities in response to the Fiduciary Rule. 
Firms are also developing new technology, and advisory and data 
services to help Financial Institutions satisfy the supervisory 
requirements of the PTEs. The Department welcomes information on these 
developments and their relevance to the rule, the PTEs' terms and 
compliance timelines.
    The Department is particularly interested in public input on 
whether it would be appropriate to adopt an additional more streamlined 
exemption or other rule change for advisers committed to taking new 
approaches like those outlined above based on the potential for 
reducing conflicts of interest and increasing transparency. If 
commenters believe more time would be necessary to build the necessary 
distribution and compliance structures for such innovations, the 
Department is interested in information related to the amount of time 
expected to be required.
    And, the Department seeks comment generally on a delay in the 
January 1, 2018, applicability date of the provisions in the BIC 
Exemption, Principal Transactions Exemption and amendments to PTE 84-24 
while it evaluates the rule generally and the responses to issues 
identified in this Request for Information.

Potential Delay of January 1, 2018 Applicability Date

    1. Would a delay in the January 1, 2018, applicability date of the 
provisions in the BIC Exemption, Principal Transactions Exemption and 
amendments to PTE 84-24 reduce burdens on financial services providers 
and benefit retirement investors by allowing for more efficient 
implementation responsive to recent market developments? Would such a 
delay carry any risk? Would a delay otherwise be advantageous to 
advisers or investors? What costs and benefits would be associated with 
such a delay?

General Questions

    2. What has the regulated community done to comply with the Rule 
and PTEs to date, particularly including the period since the June 9, 
2017, applicability date? Are there market innovations that the 
Department should be aware of beyond those discussed herein that should 
be considered in making changes to the Rule?
    3. Do the Rule and PTEs appropriately balance the interests of 
consumers in receiving broad-based investment advice while protecting 
them from conflicts of interest? Do they effectively allow Advisers to 
provide a wide range of products that can meet each investor's 
particular needs?
    4. During the transition period from June 9, 2017, through January 
1, 2018, Financial Institutions and Advisers who wish to utilize the 
BIC Exemption must adhere to the Impartial Conduct Standards only. Most 
of the questions in this RFI are intended to solicit comments on the 
additional exemption conditions that are currently scheduled to become 
applicable on January 1, 2018, such as the contract requirement for 
IRAs. To what extent do the incremental costs of the additional 
exemption conditions exceed the associated benefits and what are those 
costs and benefits? Are there better alternative approaches? What are 
the additional costs and benefits associated with such alternative 
approaches?

Contract Requirement in BIC and Principal Transaction Exemptions

    The contract requirement in the BIC Exemption and Principal 
Transactions Exemption and resulting exposure to litigation creates an 
added motivation for Financial Institutions and Advisers

[[Page 31280]]

to oversee and adhere to basic fiduciary standards, and provides that 
IRA owners have an additional means to enforce those protections. 
Throughout the fiduciary rulemaking, however, commenters have been 
divided on the contract requirement, with many expressing concern about 
potential negative implications for investor costs and access to 
advice. As noted above, the Department is interested in the possibility 
of regulatory changes that could alter or eliminate contractual and 
warranty requirements.
    5. What is the likely impact on Advisers' and firms' compliance 
incentives if the Department eliminated or substantially altered the 
contract requirement for IRAs? What should be changed? Does compliance 
with the Impartial Conduct Standards need to be otherwise incentivized 
in the absence of the contract requirement and, if so, how?
    6. What is the likely impact on Advisers' and firms' compliance 
incentives if the Department eliminated or substantially altered the 
warranty requirements? What should be changed? Does compliance with the 
Impartial Conduct Standards need to be otherwise incentivized in the 
absence of the warranty requirement and, if so, how?

Alternative Streamlined Exemption

    As noted above, the Department is also interested in receiving 
additional input from the public on possible additional and more 
streamlined exemption approaches that would better address marketplace 
innovations that may mitigate or even eliminate some kinds of potential 
advisory conflicts otherwise associated with recommendations of 
affected financial products innovations.
    7. Would mutual fund clean shares allow distributing Financial 
Institutions to develop policies and procedures that avoid compensation 
incentives to recommend one mutual fund over another? If not, why? What 
legal or practical impediments do Financial Institutions face in adding 
clean shares to their product offerings? How long is it anticipated to 
take for mutual fund providers to develop clean shares and for 
distributing Financial Institutions to offer them, including the time 
required to develop policies and procedures that take clean shares into 
account? What are the costs associated with developing and distributing 
clean shares? Have Financial Institutions encountered any operational 
difficulties with respect to the distribution of clean shares to the 
extent they are available? Do commenters anticipate that some mutual 
fund providers will proceed with T-share offerings instead of, or in 
addition to, clean shares? If so, why?
    8. How would advisers be compensated for selling fee-based 
annuities? Would all of the compensation come directly from the 
customer or would there also be payments from the insurance company? 
What regulatory filings are necessary for such annuities? Would 
payments vary depending on the characteristics of the annuity? How long 
is it anticipated to take for an insurance company to develop and offer 
a fee-based annuity? How would payments be structured? Would fee-based 
annuities differ from commission-based annuities in any way other than 
the compensation structure? How would the fees charged on these 
products compare to the fees charged on existing annuity products? Are 
there any other recent developments in the design, marketing, or 
distribution of annuities that could facilitate compliance with the 
Impartial Conduct Standards?
    9. Clean shares, T-shares, and fee-based annuities are all examples 
of market innovations that may mitigate or even eliminate some kinds of 
potential advisory conflicts otherwise associated with recommendations 
of affected financial products. These innovations might also increase 
transparency of advisory and other fees to retirement investors. Are 
there other innovations that hold similar potential to mitigate 
conflicts and increase transparency for consumers? Do these or other 
innovations create an opportunity for a more streamlined exemption? To 
what extent would the innovations address the same conflicts of 
interest as the Department's original rulemaking?
    10. Could the Department base a streamlined exemption on a model 
set of policies and procedures, including policies and procedures 
suggested by firms to the Department? Are there ways to structure such 
a streamlined exemption that would encourage firms to provide input 
regarding the design of such a model set of policies and procedures? 
How likely would individual firms be to submit model policies and 
procedures suggestions to the Department? How could the Department 
ensure compliance with approved model policies and procedures?

Incorporation of Securities Regulation of Fiduciary Investment Advice

    11. If the Securities and Exchange Commission or other regulators 
were to adopt updated standards of conduct applicable to the provision 
of investment advice to retail investors, could a streamlined exemption 
or other change be developed for advisers that comply with or are 
subject to those standards? To what extent does the existing regulatory 
regime for IRAs by the Securities and Exchange Commission, self-
regulatory bodies (SROs) or other regulators provide consumer 
protections that could be incorporated into the Department's exemptions 
or that could serve as a basis for additional relief from the 
prohibited transaction rules?

Principal Transactions

    The Principal Transaction Exemption provides relief only for 
certain investments (certain debt securities, CDs and unit investment 
trusts) to be sold by Advisers and Financial Institutions to plans and 
IRAs in principal transactions and riskless principal transactions, 
while the BIC Exemption provides additional relief for parties to 
engage in riskless principal transactions without any restrictions on 
the types of investments involved.
    12. Are there ways in which the Principal Transactions Exemption 
could be revised or expanded to better serve investor interests and 
provide market flexibility? If so, how?

Disclosure Requirements

    13. Are there ways to simplify the BIC Exemption disclosures or to 
focus the investor's attention on a few key issues, subject to more 
complete disclosure upon request? For example, would it be helpful for 
the Department to develop a simple up-front model disclosure that 
alerts the retirement investor to the fiduciary nature of the 
relationship, compensation structure, and potential sources of 
conflicts of interest, and invites the investor to obtain additional 
information from a designated source at the firm? The Department would 
welcome the submission of any model disclosures that could serve this 
purpose.

Contributions to Plans or IRAs

    14. Should recommendations to make or increase contributions to a 
plan or IRA be expressly excluded from the definition of investment 
advice? Should there be an amendment to the Rule or streamlined 
exemption devoted to communications regarding contributions? If so, 
what conditions should apply to such an amendment or exemption?

Bank Deposits and Similar Investments

    Some commenters have raised questions about the compliance burden 
under the Rule and PTEs on small community banks that currently do not 
exercise any fiduciary functions for

[[Page 31281]]

customers when their employees discuss opening IRAs or investing their 
IRAs in bank deposit products such as CDs. Some have also raised 
questions about the need for a special rule for cash sweep services. 
Still others have said that health savings accounts (HSAs) merit a 
special exclusion or streamlined exemption because they tend to be 
invested in shorter-term deposit products to pay qualifying health 
expenses.
    15. Should there be an amendment to the Rule or streamlined 
exemption for particular classes of investment transactions involving 
bank deposit products and HSAs? If so, what conditions should apply, 
and should the conditions differ from the BIC Exemption?

Grandfathering

    Section VII of the BIC Exemption provides a grandfathering 
provision to facilitate ongoing advice with respect to investments that 
predated the Rule, and to enable advisers to continue to receive 
compensation for those investments. Some commenters thought this 
provision could be expanded in ways that would minimize potential 
disruptions associated with the transition to a fiduciary standard and 
facilitate ongoing advice for the benefit of investors.
    16. To what extent are firms and advisers relying on the existing 
grandfather provision? How has the provision affected the availability 
of advice to investors? Are there changes to the provision that would 
enhance its ability to minimize undue disruption and facilitate 
valuable advice?

PTE 84-24

    17. If the Department provided an exemption for insurance 
intermediaries to serve as Financial Institutions under the BIC 
Exemption, would this facilitate advice regarding all types of 
annuities? Would it facilitate advice to expand the scope of PTE 84-24 
to cover all types of annuities after the end of the transition period 
on January 1, 2018? What are the relative advantages and disadvantages 
of these two exemption approaches (i.e., expanding the definition of 
Financial Institution or expanding the types of annuities covered under 
PTE 84-24)? To what extent would the ongoing availability of PTE 84-24 
for specified annuity products, such as fixed indexed annuities, give 
these products a competitive advantage vis-[agrave]-vis other products 
covered only by the BIC Exemption, such as mutual fund shares?

Communications With Independent Fiduciaries With Financial Expertise

    The Fiduciary Rule contains a specific exclusion for communications 
with independent fiduciaries with financial expertise. Specifically, a 
party's communications with an independent fiduciary of a plan or IRA 
in an arm's length transaction are excepted from the Rule if certain 
disclosure requirements are met and the party reasonably believes that 
the independent fiduciary of the plan or IRA is a bank, insurance 
carrier, or registered broker-dealer or investment adviser, or any 
other independent fiduciary who manages or controls at least $50 
million. Some commenters have requested that the Department expand the 
scope of the exclusion.
    18. To the extent changes would be helpful, what are the changes 
and what are the issues best addressed by changes to the Rule or by 
providing additional relief through a prohibited transaction exemption?

    Signed at Washington, DC, this 29th day of June, 2017.
Timothy D. Hauser,
Deputy Assistant Secretary for Program Operations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2017-14101 Filed 7-5-17; 8:45 am]
 BILLING CODE 4510-29-P