[Federal Register Volume 64, Number 44 (Monday, March 8, 1999)]
[Notices]
[Pages 11042-11044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-5571]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application Number: D-10554]
Amendment to Prohibited Transaction Exemption 97-11 (PTE 97-11)
for the Receipt of Certain Investment 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: Adoption of Amendment to PTE 97-11.
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SUMMARY: This document amends PTE 97-11, 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 broker-dealer, provided that the conditions
of the exemption are met. The amendment affects individuals with a
beneficial interest in the IRAs and Keogh Plans who receive such
services as well as the broker-dealers who provide such services.
EFFECTIVE DATE: The amendment is effective January 1, 1998.
FOR FURTHER INFORMATION CONTACT: Allison Padams Lavigne, Office of
Exemption Determinations, U.S. Department of Labor, (202) 219-8971,
(this is not a toll-free number).
[[Page 11043]]
SUPPLEMENTARY INFORMATION: On October 21, 1998, notice was published in
the Federal Register (63 FR 56231) of the pendency before the
Department of a proposed amendment to PTE 97-11 (62 FR 5855, February
7, 1997). PTE 97-11 provides relief from the restrictions of sections
406(a)(1)(D) and 406(b) of 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.*
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\*\ Section 102 of Reorganization Plan No. 4 of 1978 (43 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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The amendment to PTE 97-11 adopted by this notice was requested in
an exemption application filed on behalf of the Securities Industry
Association (SIA). The exemption application was submitted 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).
The notice of pendency gave interested persons an opportunity to
comment or to request a hearing on the proposed amendment. No public
comments or requests for a hearing were received.
For the sake of convenience, the entire text of PTE 97-11, as
amended, has been reprinted with this notice.
PTE 97-11 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 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/are 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 to mean
an individual retirement account described in section 408(a) of the
Code. 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 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. The amendment adopted by this notice modifies
section III(b) of PTE 97-11 to include education individual retirement
account (Education IRAs) as defined in section 530 of the Code. The
Department notes that all the conditions contained in PTE 97-11 still
must be satisfied with respect to education IRAs as with all other IRAs
and Keogh Plans covered by the exemption.
General Information
The attention of interested persons is directed to the following:
(1) In accordance with section 408(a) of ERISA and section
4975(c)(2) of the Code and based upon the entire record, the Department
finds that this amendment 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 amendment is supplemental to, and not in derogation of, any
other provisions of ERISA and the Code, including statutory or
administrative exemptions and transitional rules. Furthermore, the fact
that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction.
(3) The class exemption is applicable to a transaction only if the
conditions specified in the class exemption are met.
Exemption
Accordingly, PTE 97-11 is amended under the authority of section of
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).
Section I: Covered Transactions
Effective January 1, 1998, the restrictions of sections
406(a)(1)(D) and (b) of ERISA, and the sanctions resulting from the
application of section 4975 of the Code, including the loss of
exemption of an IRA, pursuant to section 408(e)(2)(A) of the Code, by
reason of section 4975(c)(1)(D), (E), and (F) of the Code, shall not
apply to 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 each condition of Section II of this exemption
is satisfied.
Section II: Conditions
(a) The IRA or Keogh Plan whose account value or whose fees are
taken into account for purposes of determining eligibility to receive
services under the arrangement is established and maintained for the
exclusive benefit of the participant covered under the IRA or Keogh
Plan, his or her spouse or their beneficiaries.
(b) The services offered under the relationship brokerage
arrangement must be of the type that the broker-dealer itself could
offer consistent with all applicable federal and state laws regulating
broker-dealers.
(c) The services offered under the arrangement are provided by the
broker-dealer (or an affiliate of the broker-dealer) in the ordinary
course of the broker-dealer's business to customers who qualify for
reduced or no cost services, but do not maintain IRAs or Keogh Plans
with the broker-dealer.
(d) For the purpose of determining eligibility to receive services,
the arrangement satisfies one of the following:
(i) Eligibility requirements based on the account value of the IRA
or Keogh Plan are as favorable as any such requirements based on the
value of any other type of account which the broker-dealer includes to
determine eligibility; or
(ii) Eligibility requirements based on the amount of fees incurred
by the IRA or Keogh Plan are as favorable as any requirements based on
the amount of fees incurred by any other type of account which the
broker-dealer includes to determine eligibility.
(e) The combined total of all fees for the provision of services to
the IRA or Keogh Plan is not in excess of reasonable compensation
within the meaning of section 4975(d)(2) of the Code.
(f) The investment performance of the IRA or Keogh Plan investment
is no less favorable than the investment performance of an identical
investment(s) that could have been made at the same time by a customer
of the broker-dealer who is not eligible for (or who does not receive)
reduced or no cost services.
(g) The services offered under the arrangement to the IRA or Keogh
Plan customer must be the same as are
[[Page 11044]]
offered to non-IRA or non-Keogh Plan customers with account values of
the same amount or the same amount of fees generated.
Section III: Definitions
The following definitions apply to this exemption:
(a) The term broker-dealer means a broker-dealer registered under
the Securities Exchange Act of 1934.
(b) 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.
(c) The term Keogh Plan means a pension, profit-sharing, or stock
bonus plan qualified under Code section 401(a) and exempt from taxation
under Code section 501(a) under which some or all of the participants
are employees described in section 401(c) of the Code. For purposes of
this exemption, the term Keogh Plan shall not include a Keogh Plan
which is an employee benefit plan covered by Title I of ERISA.
(d) The term account value means investments in cash or securities
held in the account for which market quotations are readily available.
For purposes of this exemption, the term cash shall include savings
accounts that are insured by a federal deposit insurance agency that
constitute deposits as that term is defined in section 29 CFR
2550.408b-4(c)(3). The term account value shall not include investments
in securities that are offered by the broker-dealer (or its affiliate)
exclusively to IRAs and Keogh Plans.
(e) An affiliate of a broker-dealer includes any person directly or
indirectly controlling, controlled by, or under common control with the
broker-dealer. The term control means the power to exercise a
controlling influence over the management or policies of a person other
than an individual.
(f) The term members of his or her family refers to beneficiaries
of the individual for whose benefit the IRA or Keogh Plan is
established or maintained, who would be members of the family as that
term is defined in Code section 4975(e)(6), or a brother, a sister, or
spouse of a brother or sister.
(g) The term service includes incidental products of a de minimis
value which are directly related to the provision of services covered
by the exemption.
(h) The term fees means commissions and other fees received by the
broker-dealer from the IRA or Keogh Plan for the provision of services,
including, but not limited to, brokerage commissions, investment
management fees, custodial fees, and administrative fees.
Signed at Washington, DC, this 26th day of February 1999.
Alan D. Lebowitz,
Deputy Assistant Secretary for Program Operations, Pension and Welfare
Benefits Administration, U. S. Department of Labor.
[FR Doc. 99-5571 Filed 3-5-99; 8:45 am]
BILLING CODE 4510-29-P