[Federal Register Volume 63, Number 203 (Wednesday, October 21, 1998)]
[Notices]
[Pages 56233-56235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28214]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application Number: D-10567]


Proposed Amendment to Prohibited Transaction Exemption 93-33 (PTE 
93-33) for the Receipt of Certain Services by Individuals for Whose 
Benefit Individual Retirement Accounts or Retirement Plans for Self-
Employed Individuals Have Been Established or Maintained

AGENCY: Pension and Welfare Benefits Administration, U.S. Department of 
Labor.

ACTION: Notice of Proposed Amendment to PTE 93-33.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor of a proposed amendment to PTE 93-33. PTE 93-33 is 
a class exemption that permits the receipt of services at reduced or no 
cost by an individual for whose benefit an individual retirement 
account (IRA) or, if self-employed, a Keogh Plan, is established or 
maintained, or by members of his or her family, from a bank, provided 
that the conditions of the exemption are met. The proposed amendment, 
if adopted, would affect individuals with beneficial interests in such 
plans who receive such services as well as the banks that provide the 
services.

DATES: If adopted, the proposed amendment would be effective January 1, 
1998. Written comments and requests for a public hearing should be 
received by the Department on or before December 7, 1998.

ADDRESSES: All written comments and requests for a public hearing 
(preferably three copies) should be addressed to the U.S. Department of 
Labor, Office of Exemption Determinations, Pension and Welfare Benefits 
Administration, room N-5649, 200 Constitution Ave, NW, Washington, DC 
20210, (Attn: D-10567).

FOR FURTHER INFORMATION CONTACT: Ms. Allison Padams Lavigne, Office of 
Exemption Determinations, Pension and Welfare Benefits Administration, 
U. S. Department of Labor, (202) 219-8971 (this is not a toll-free 
number).

SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency 
before the Department of a proposed amendment to PTE 93-33 (58 FR 
31053, May 28, 1993, as amended, 59 FR 22686, May 2, 1994). PTE 93-33 
provides relief from the restrictions of sections 406(a)(1)(D) and 
406(b) of the Employee Retirement Income Security Act of 1974 (ERISA) 
and the sanctions resulting from the application of sections 4975 (a) 
and (b), 4975(c)(3) and 408(e)(2) of the Internal Revenue Code of 1986 
(the Code) by reason of section 4975(c)(1)(D), (E) and (F) of the 
Code.1 The amendment proposed herein was requested in an 
exemption application dated January 26, 1998, filed by the American 
Bankers Association (the ABA). The ABA is the largest banking trade 
association in the United States representing the interests of banking 
institutions. Its membership includes community, regional and money 
center banks and holding companies, savings associations, trust 
companies and savings banks. The application was filed pursuant to 
section 408(a) of ERISA and section 4975(c)(2) of the Code and in 
accordance with the procedures set forth in 29 CFR Part 2570, subpart B 
(55 FR 32836, August 10, 1990).
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    \1\ Section 102 of Reorganization Plan No. 4 of 1978 (42 FR 
47713, October 17, 1978) generally transferred the authority of the 
Secretary of the Treasury to issue administrative exemptions under 
section 4975(c)(2) of the Code to the Secretary of Labor.
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    PTE 93-33, as amended, permits the receipt of services at reduced 
or no cost by an individual for whose benefit an IRA or Keogh Plan is 
established or maintained or by members of his or her family, from a 
bank pursuant to an arrangement in which the account balance in the IRA 
or Keogh Plan is taken into account for purposes of determining 
eligibility to receive such services, provided the conditions of the 
exemption are met.
    The ABA requests an amendment to PTE 93-33 which would expand the 
definition of the term ``IRA'' as defined in section III(b) of the 
exemption to include any plan account (currently existing or that 
Congress may create in the future) subject to the provisions of section 
408(e) and/or section 4975 of the Code. The Department has decided not 
to expand the definition of the term ``IRA'' to include any plan 
account subject to the provisions of section 408(e) and/or section 4975 
of the Code because the conditions contained in PTE 93-33, as amended, 
were developed based upon the specific characteristics of the IRAs and 
Keogh Plans described in section III(b) and (c) respectively. The 
Department does not believe that a sufficient showing has been made 
that the safeguards contained in the exemption would adequately address 
the concerns that the Department may have with regard to an 
unidentified class of new accounts.
    In the alternative, the ABA requests that the Department expand the 
definition of the term ``IRA'' to include

[[Page 56234]]

the following new investment vehicles: Roth IRAs, education IRAs, 
Simple Retirement Accounts and Medical Savings Accounts. Section III(b) 
of the exemption defines the term ``IRA'' as an individual retirement 
account described in Code section 408(a). The definition further states 
that, for purposes of this exemption, the term ``IRA'' shall not 
include an IRA which is an employee benefit plan covered by Title I of 
ERISA, except for a Simplified Employee Pension (SEP) described in 
section 408(k) of the Code which provides participants with the 
unrestricted authority to transfer their SEP balances to IRAs sponsored 
by different financial institutions.
    The Taxpayer Relief Act of 1997 (TRA) established the Roth IRA by 
adding section 408A to the Code and the education IRA by adding section 
530 to the Code.2 The Small Business Job Protection Act of 
1996 amended section 408 of the Code to create the Simple Retirement 
Account by adding section 408(p) to the Code.3 The Medical 
Savings Account was established by the Health Insurance Portability Act 
of 1996 by adding section 220 to the Code.4
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    \2\ Taxpayer Relief Act of 1997 (Pub. L. 105-34, title III, sec. 
302(a) and sec. 213(a), August 21, 1997, 111 Stat 788)
    \3\ Small Business Job Protection Act of 1996 (Pub. L. 104-188, 
title I, sec. 1421, August 20, 1996, 110 Stat 1755)
    \4\ Health Insurance Portability Act of 1996 (Pub. L. 104-191, 
title III, sec. 301(a), August 21, 1996, 110 Stat 1936; amended Pub. 
L. 105-34, title XVI, sec. 1602, August 5, 1997, 111 Stat 788)
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    Section 408A(a) of the Code provides that, except as provided in 
this section, a Roth IRA shall be treated for purposes of this title in 
the same manner as an individual retirement plan. Section 408A(b) of 
the Code provides that, for purposes of this title, the term Roth IRA 
means an individual retirement plan (as defined in section 7701(a)(37)) 
which is designated at the time of the establishment of the plan as a 
Roth IRA.
    In Advisory Opinion 98-03A (March 6, 1998), the Department stated 
that a Roth IRA which satisfies the definition of an individual 
retirement plan contained in section 7701(a)(37)(A) 5 of the 
Code is an ``individual retirement account'' described in section 
408(a) of the Code for purposes of the definition of the term ``IRA'' 
contained in section III(b) of PTE 97-11 (62 FR 5855 (February 7, 
1997)) 6. Therefore, a Roth IRA, as described above, which 
is not an employee benefit plan covered by Title I of ERISA (except for 
certain SEPs and Simple Retirement Accounts described in section 408(k) 
and 408(p) of the Code, respectively) would be covered by the relief 
provided in PTE 97-11, if all conditions therein are met. In this 
regard, we note that the definition of the term ``IRA'' used in section 
III(b) of PTE 93-33 is identical to the definition of an IRA contained 
in section III(b) of PTE 97-11 (except that the definition of the term 
``IRA'' in PTE 97-11 was amended to include Simple Retirement 
Accounts). Accordingly, since the relevant portion of the definition of 
IRA under PTE 97-11 is identical to the language contained in PTE 93-
33, the Department is of the view that a Roth IRA would be covered by 
the relief provided in PTE 93-33, if all the conditions therein are 
met. Thus, there is no need to specifically amend PTE 93-33 to include 
Roth IRAs.
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    \5\ Section 7701(a)(37) of the Code defines the term 
``individual retirement plan'' to mean: (A) an individual retirement 
account described in section 408(a) of the Code, and (B) an 
individual retirement annuity described in section 408(b) of the 
Code.
    \6\ PTE 97-11 permits the receipt of services at reduced or no 
cost by an individual for whose benefit an IRA or, if self-employed, 
a Keogh Plan, is established or maintained or by members of his or 
her family, from a broker-dealer registered under the Securities 
Exchange Act of 1934 pursuant to an arrangement in which the account 
value of, or the fees incurred for services provided to, the IRA or 
Keogh Plan is taken into account for purposes of determining 
eligibility to receive such services, provided that the conditions 
of the exemption are met. The term ``IRA'' is defined in section 
III(b) of PTE 97-11 as an individual retirement account described in 
section 408(a) of the Code. For purposes of this exemption, the term 
IRA shall not include an IRA which is an employee benefit plan 
covered by Title I of ERISA except for a Simplified Employee Pension 
(SEP) described in section 408(k) of the Code or a Simple Retirement 
Account described in section 408(p) of the Code which provides the 
participants with the unrestricted authority to transfer their 
balances to IRAs or Simple Retirement Accounts sponsored by 
different financial institutions.
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    Section 530(b)(1) of the Code provides in part, that the term 
``education individual retirement account'' means a trust created or 
organized in the United States exclusively for the purpose of paying 
the qualified higher education expenses of the designated beneficiary 
of the trust (and designated as an education individual retirement 
account at the time created or organized). Section 530(b)(1) further 
provides: but only if the written governing instrument creating the 
trust meets the following requirements:
    (A) no contribution will be accepted--(i) unless it is in cash, 
(ii) after the date on which such beneficiary attains age 18, or (iii) 
except in the case of rollover contributions, if such contributions 
would result in aggregate contributions for the taxable year exceeding 
$500; (B) the trustee is a bank (as defined in section 408(n) of the 
Code or another person who demonstrates to the satisfaction of the 
Secretary that the manner in which that person will administer the 
trust will be consistent with the requirements of this section or who 
has so demonstrated with respect to any individual retirement plan; (C) 
no part of the trust assets shall be invested in life insurance 
contracts; (D) the assets of the trust shall not be commingled with 
other property except in a common trust fund or common investment fund; 
and (E) upon the death of the designated beneficiary, any balance to 
the credit of the beneficiary shall be distributed within 30 days after 
the date of death to the estate of such beneficiary.
    The Education IRA is subject to disqualification provisions which 
are similar to those in section 408(e)(2) and (4) of the Code that are 
applicable to IRAs described in section 408(a) of the Code.7 
In addition, as with section 408(a) IRAs, the Education IRA balance can 
be transferred to different sponsoring institutions.8 
Further, the TRA amended the definition of plans as defined in section 
4975(e)(1) of the Code to include an educational IRA described in 
section 530 of the Code. Based on the ABA's representations, it appears 
that Education IRAs share many of the same characteristics as those 
IRAs covered by the exemption. Thus, the Department sees merit in the 
ABA's request, and, accordingly, has modified the definition of IRA in 
section III(b) of PTE 93-33 to include Education IRAs.
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    \7\ See section 530(e) of the Code.
    \8\ See section 530(d)(5) of the Code.
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    Simple Retirement Accounts are defined in section 408(p) of the 
Code as an individual retirement plan (as defined in section 
7701(a)(37))--(A) with respect to which the requirements of paragraphs 
(3), (4) and (5) are met; and (B) with respect to which the only 
contributions allowed are contributions under a qualified salary 
reduction arrangement. Simple Retirement Accounts are funded by 
employee contributions and matching employer contributions.9 
Section 408(p)(7) of the Code provides that participants of Simple 
Retirement Accounts have the unrestricted authority to transfer their 
account balances without cost or penalty to Simple Retirement Accounts 
sponsored by different financial institutions. In its application, the 
ABA noted that the Department modified the definition of the term 
``IRA'' under PTE 97-11 to include Simple Retirement Accounts. The 
Department agrees with the ABA and has modified section III(b) under 
the proposed amendment to include Simple Retirement Accounts.
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    \9\ See section 408(p)(2)(A) of the Code.
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    Finally, the ABA represents that a Medical Savings Account is a 
tax-exempt trust or custodial account established to pay medical 
expenses.

[[Page 56235]]

The ABA exemption application included a copy of IRS Notice 96-53, 
1996-51 I.R.B. 5, (December 6, 1996) (the Notice) which describes the 
Medical Savings Accounts. Although the Notice states that a number of 
the rules that apply to Medical Savings Account also apply to IRAs, the 
Notice also states that Medical Savings Accounts differ from IRAs in 
important respects. In this regard, neither the ABA application nor the 
Notice discuss these differences. In addition, the Department does not 
believe that a sufficient showing has been made that the safeguards and 
conditions currently contained in PTE 93-33 are relevant in the context 
of Medical Savings Accounts. Consequently, the Department has 
determined not to propose the requested relief for Medical Savings 
Accounts.

Notice to Interested Persons

    Because many participants in IRAs and Keogh Plans and banks could 
conceivably be considered interested persons, the only practical form 
of notice is publication in the Federal Register.

General Information

    The attention of interested persons is directed to the following:
    (1) Before an exemption may be granted under section 408(a) of 
ERISA and section 4975(c)(2) of the Code, the Department must find that 
the exemption is administratively feasible, in the interests of the 
IRAs and Keogh Plans and their participants and beneficiaries and 
protective of the rights of the participants and beneficiaries of such 
plans.
    (2) The proposed amendment if granted, will be supplemental to, and 
not in derogation of, any other provisions of ERISA and the Code 
including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative exemption is not dispositive of whether the transaction 
is in fact a prohibited transaction.
    (3) If granted, the proposed amendment will be applicable to a 
transaction only if the conditions specified in the class exemption are 
met.

Written Comments and Hearing Request

    All interested persons are invited to submit written comments or 
requests for a public hearing on the proposed amendment to the address 
and within the time period set forth above. All comments will be made a 
part of the record. Comments and requests for a hearing should state 
the reasons for the writer's interest in the proposed amendment. 
Comments received will be available for public inspection with the 
referenced application at the above address.

Proposed Amendment

    Under section 408(a) of ERISA and section 4975(c)(2) of the Code 
and in accordance with the procedures set forth in 29 CFR Part 2570, 
Subpart B (55 FR 32836, August 10, 1990), the Department proposes to 
amend PTE 93-33 as set forth below:
    Section III(b) is amended to read: ``The term IRA means an 
individual retirement account described in Code section 408(a) or an 
education individual retirement account described in section 530 of the 
Code. For purposes of this exemption, the term ``IRA'' shall not 
include an IRA which is an employee benefit plan covered by Title I of 
ERISA, except for a Simplified Employee Pension (SEP) described in 
section 408(k) of the Code or a Simple Retirement Account described in 
section 408(p) of the Code which provides participants with the 
unrestricted authority to transfer their balances to IRAs or Simple 
Retirement Accounts sponsored by different financial institutions.''

    Signed at Washington, DC this 6th day of October, 1998.
Alan D. Lebowitz,
Deputy Assistant Secretary for Program Operations, Pension and Welfare 
Benefits Administration, U.S. Department of Labor.
[FR Doc. 98-28214 Filed 10-20-98; 8:45 am]
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