[Federal Register Volume 68, Number 236 (Tuesday, December 9, 2003)]
[Proposed Rules]
[Pages 68710-68715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30435]



[[Page 68709]]

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Part III





Department of Labor





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Employee Benefits Security Administration



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29 CFR Part 2510



Electronic Registration Requirements for Investment Advisers To Be 
Investment Managers Under Title I of ERISA; Proposed Rule

  Federal Register / Vol. 68, No. 236 / Tuesday, December 9, 2003 / 
Proposed Rules  

[[Page 68710]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2510

RIN 1210-AA94


Electronic Registration Requirements for Investment Advisers To 
Be Investment Managers Under Title I of ERISA

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains a proposed regulation relating to the 
definition of investment manager in section 3(38)(B) of Title I of the 
Employee Retirement Income Security Act of 1974 (ERISA). Under the 
proposed regulation, in lieu of filing a copy of their state 
registration forms with the Secretary of Labor, state-registered 
investment advisers seeking to obtain or maintain investment manager 
status under Title I of ERISA would have to electronically register 
through the Investment Adviser Registration Depository (IARD) as an 
investment adviser with the state in which they maintain their 
principal office and place of business. The IARD is a centralized 
electronic filing system, established by the Securities and Exchange 
Commission (SEC) in conjunction with state securities authorities. The 
IARD enables investment advisers to satisfy SEC and state registration 
obligations through the use of the Internet, and current filing 
information in the IARD database is readily available to the Department 
and the general public via the Internet. If adopted, the proposed 
regulation would make electronic registration through the IARD the 
exclusive method for state-registered investment advisers to satisfy 
filing requirements for investment manager status under section 
3(38)(B)(ii) of Title I of ERISA. The proposed regulation would affect 
plan trustees, investment managers, other fiduciaries, and plan 
participants and beneficiaries.

DATES: Written comments (either in print or electronic format) are 
invited and must be submitted to the Department of Labor on or before 
February 9, 2004.

ADDRESSES: Interested persons are invited to submit written comments 
(preferably with three copies) to the Office of Regulations and 
Interpretations, Room N-5669, Employee Benefits Security 
Administration, U.S. Department of Labor, 200 Constitution Ave., NW., 
Washington, DC 20210, Attention: ERISA Investment Manager Electronic 
Registration NPRM. Written comments may also be sent by Internet to the 
following address: [email protected]. All submissions received will be 
available for public inspection and copying from 8:30 a.m. to 4:30 p.m. 
at the Public Disclosure Room, Employee Benefits Security 
Administration, U.S. Department of Labor, Room N-1513, 200 Constitution 
Ave. NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Florence M. Novellino, Office of 
Regulations and Interpretations, Employee Benefits Security 
Administration, U.S. Department of Labor, Washington, DC 20210, 
telephone (202) 693-8518 (not a toll free number).

SUPPLEMENTARY INFORMATION:

A. Background

    Under Title I of the Employee Retirement Income Security Act of 
1974 (ERISA), named fiduciaries of plans may appoint investment 
managers to manage assets of the plan. If the investment manager is a 
registered investment adviser, bank or insurance company, and meets the 
other requirements for being an ``investment manager'' as defined in 
section 3(38) of ERISA, the plan trustees are relieved from certain 
liabilities relating to the investment manager's performance.\1\
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    \1\ Section 402(c)(3) of ERISA states that a plan may provide 
that with respect to control or management of plan assets a named 
fiduciary may appoint an investment manager or managers to manage 
(including the power to acquire and dispose of) plan assets. Section 
405(d) of ERISA provides in part that, if an investment manager or 
managers have been appointed under section 402(c)(3), then no 
trustee shall be liable for the acts or omissions of such investment 
manager or managers, or be under an obligation to invest or 
otherwise manage any asset of the plan which is subject to the 
management of such investment manager.
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    In 1996, the National Securities Market Improvement Act (NSMIA) 
amended the Investment Advisers Act of 1940 (Advisers Act) to divide 
certain investment adviser regulatory responsibilities, including the 
registration requirements, between the Securities and Exchange 
Commission (SEC) and the states. Prior to 1996, most investment 
advisers were required to register with the SEC and in each state in 
which they were doing business. Pursuant to paragraph (1) of section 
203A(a) of the Advisers Act, and SEC rule at 17 CFR 275.203A-1, certain 
investment advisers are prohibited from registering with the SEC but 
must register with the state in which the adviser maintains it 
principal office and place of business.\2\ The legislative history of 
NSMIA indicates that this division of regulatory responsibilities was 
intended, among other things, to encourage the SEC and state regulators 
to create a uniform system for ``one-stop'' filing that would benefit 
investors, reduce regulatory and paperwork burdens for registered 
investment advisers, and facilitate supervision of investment 
advisers.\3\
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    \2\ Specifically, subject to certain exceptions, investment 
advisers fall into three categories under the NSMIA amendments. 
First, investment advisers having assets under management of less 
than $25 million generally are prohibited from registering with the 
SEC but must register with the state regulatory authority in the 
state where the investment adviser maintains its principal office 
and place of business. Those with at least $25 million but less than 
$30 million may register with the SEC in lieu of filing with state 
authorities. Those with $30 million or more must register with the 
SEC. Section 203A(a) of the Advisers Act is codified at 15 U.S.C. 
80b-3a(a). See also 17 CFR 275.203A-2 for exemptions from the 
prohibition for certain investment advisers registering with the 
SEC.
    \3\ S. Rep. No. 104-293, at 5 (1996).
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    The SEC implemented that legislative intent at the federal level by 
publishing a final rule in September of 2000 at 17 CFR 275.203-1 which 
made electronic filing with the Investment Adviser Registration 
Depository (IARD) mandatory for SEC-registered advisers. Additionally, 
all states accept forms filed via the IARD to satisfy state 
registration requirements, and many mandate state registration via the 
IARD.\4\ Accordingly, the IARD has become a ``one-stop'' Internet-based 
centralized filing system that enables investment advisers to satisfy 
filing obligations with both federal and state securities regulators. 
Pertinent state registration information in the IARD database is 
available on the Internet to the general public through the Investment 
Adviser Public Disclosure (IAPD) Web site that may be directly accessed 
through the SEC's Web site or through links from various state and 
investor Web sites. The IAPD Web site contains investment adviser 
registration data, including information about current registration 
forms, registration status, services provided, fees charged, and 
disclosures about certain conflicts of interest and disciplinary 
events, if any. The IAPD Web site includes information on investment 
advisers that currently are registered with the SEC or a state, and 
also contains information on investment advisers that were registered

[[Page 68711]]

in the previous two years but are no longer registered.
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    \4\ The State of Wyoming has not promulgated a state investment 
adviser regulation requirement; therefore all Wyoming-based 
investment advisers are required to register under the Advisers Act 
with the SEC via the IARD. See 65 FR 57438, 57445 (Sept. 22, 2000).
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    Section 3(38)(B) of Title I of ERISA was also amended to reflect 
the above-described changes to the investment adviser registration 
requirements under the Advisers Act.\5\ Specifically, section 3(38)(B) 
of ERISA requires that, to be an investment manager under Title I, an 
investment adviser must: (i) be registered with the SEC under the 
Advisers Act of 1940, or (ii) if not registered under such Act by 
reason of paragraph (1) of section 203A(a) of such Act, be registered 
as an investment adviser under the laws of the state in which it 
maintains its principal office and place of business and, at the time 
the investment adviser last filed the registration form it most 
recently filed with such state in order to maintain its registration 
under the laws of such state, it also filed a copy of such form with 
the Secretary of Labor.
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    \5\ See sec. 308(b)(1) of Title III of NSMIA and Act of November 
10, 1997, Sec. 1, Pub. L. 105-72, 111 Stat. 1457.
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    To implement the filing requirements in section 3(38)(B)(ii) of 
ERISA, the Department announced on January 14, 1998, that state-
registered investment advisers seeking to qualify, or remain qualified, 
as investment managers must file a copy of their most recent state 
registration form for the state in which it maintains its principal 
office and place of business with the Department prior to November 10, 
1998, and thereafter file with the Department copies of any subsequent 
filings with that state. The ongoing obligation to file copies with the 
Department was, however, to be temporary in nature and remain in effect 
until a centralized database containing the state registration forms, 
or substantially similar information, was available to the 
Department.\6\
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    \6\ Pub. L. 105-72 provided that a fiduciary shall be treated as 
meeting the requirement for filing a copy of the required state 
registration form with the Secretary if a copy of the form (or 
substantially similar information) is available to the Secretary 
from a centralized electronic or other record-keeping database. See 
Act of November 10, 1997, Sec. 1(b), Pub. L. 105-72, 111 Stat. 1457.
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    The current requirement to file with the Department copies of state 
registration filings already accessible to the Department and the 
general public via the IAPD Web site places an unnecessary 
administrative burden on the regulated community. The requirement also 
results in the Department allocating resources to receive, sort, and 
store paper copies of information readily available in electronic form. 
It is the Department's view that use of the IARD as a centralized 
electronic database would improve the ability of the Department, plan 
fiduciaries, and plan participants and beneficiaries to readily access 
registration information regarding investment advisers eligible to be 
investment managers of ERISA-covered plans. As noted above, not only 
does the SEC require electronic filing through the IARD for 
registration under the Advisers Act, but most states also require IARD 
filing for compliance with state investment adviser registration 
requirements. While a few states do not make electronic filing through 
the IARD mandatory, as noted above, all states permit investment 
advisers to use the IARD to satisfy registration requirements. As 
described more fully below, the Department believes the majority of 
investment managers of ERISA-covered plans already file registration 
forms electronically through the IARD under the Advisers Act or under 
applicable state securities laws. In the Department's view, the 
benefits to plan trustees, plan participants and beneficiaries, and the 
Department of this proposed regulation outweigh the relatively small 
incremental cost that some investment managers may incur to file state 
registration filings through the IARD.

B. Summary of the Proposed Regulation

    The proposed regulation would add Sec.  2510.3-38 to title 29 of 
the Code of Federal Regulations. Section 2510.3-38(a) would describe 
the general filing requirement with the Secretary set forth in section 
3(38)(B)(ii) applicable to state-registered investment advisers seeking 
to become or remain investment managers under Title I of ERISA. The 
regulation would also make clear that its purpose is to establish the 
exclusive means to satisfy that filing obligation. Section 2510.3-38(b) 
would provide that, for a state-registered investment adviser to 
satisfy the filing requirement in section 3(38)(B)(ii) of ERISA, it 
must electronically file the required registration forms through the 
IARD. Section 2510.3-38(b) would also provide that submitting a copy of 
state registration forms to the Secretary does not constitute 
compliance with section 3(38)(B)(ii) of ERISA. Section 2510.3-38(c) 
would define the term ``Investment Adviser Registration Depository'' 
and ``IARD'' for purposes of the regulation as the centralized 
electronic depository described in 17 CFR 275.203-1. Finally, Sec.  
2510.3-38(d) would provide a cross-reference to the SEC Internet site 
at http://www.sec.gov/iard for information on filing investment advisor 
registration forms with the IARD.

C. Effective Date and Interim Reliance

    This regulation is proposed to be effective 60 days after 
publication of a final rule in the Federal Register. If adopted, the 
proposed regulation would be applicable to investment adviser 
registration filings due after the effective date of the final 
regulation. Until the effective date of the final regulation, 
investment advisers seeking to obtain or maintain investment manager 
status under Title I of ERISA will be treated as having met the filing 
obligations with the Secretary of Labor described in section 
3(38)(B)(ii) of ERISA for any registration filing due on or after the 
date the proposed regulation is published in the Federal Register if 
they satisfy the conditions of the proposed regulation.

D. Regulatory Impact Analysis

Summary

    The Department has undertaken this proposed rulemaking for the 
purpose of establishing a single and readily accessible source of 
consistent information about the registration of investment advisers 
that are investment managers by virtue of meeting the requirements of 
section 3(38)(B)(ii) of ERISA. The Department believes the regulation, 
if implemented as proposed, would benefit plan fiduciaries, investment 
advisers, and ultimately the participants and beneficiaries of employee 
benefit plans. Although the anticipated benefits of the proposal are 
not quantified here, they are expected to more than justify its 
relatively modest estimated cost.
    The estimated cost of the implementation of electronic registration 
through the IARD for approximately 500 advisers that submitted copies 
of their state registrations to the Secretary of Labor, and that 
currently register in only those states that do not mandate IARD 
filing, is just under $400,000. Ongoing annual costs are estimated at 
$50,000. These costs will be offset by efficiency gains for plan 
fiduciaries and for investment advisers that wish to be appointed by 
plan fiduciaries. As a result of the electronic registration 
requirement, plan fiduciaries will be able to access a single source of 
registration information regardless of the size or location of the 
adviser, and advisers may more readily demonstrate their eligibility to 
be investment managers in order to gain appointments by plan 
fiduciaries. Over time, these investment managers may also reduce the 
handling of paper and the time required to complete the Form ADV, which 
is the joint SEC and state registration form that is also currently

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accepted by all the states for State registration purposes. Electronic 
availability of registration information will also support better and 
more transparent decision making with respect to the appointment of 
investment managers, which ultimately benefits the participants and 
beneficiaries of the plans involved.

Discussion

    The proposal would benefit plan fiduciaries that wish to appoint an 
investment manager pursuant to section 402(c)(3) of ERISA. Under 
section 405(d)(1) of ERISA, plan fiduciaries are not liable for the 
acts or omissions of the investment manager, and have no obligation to 
invest assets subject to management by the investment manager. The 
centralized source of readily accessible registration information 
offered by the IARD will help plan fiduciaries more efficiently locate 
information needed to determine whether advisers they may consider 
appointing are eligible to be an investment manager under ERISA. The 
source and format of information will no longer differ based on the 
size or principal business location of the adviser.
    Uniform use of the IARD for all advisers who wish to be or remain 
as investment managers under ERISA will benefit these advisers as well. 
The change to electronic filing will not change the incentives for 
investment advisers to become investment managers under ERISA, but 
should promote increased efficiency for doing so. Advisers are not 
required to be an investment manager to conduct advisory activities for 
any customer. The Department assumes that an adviser's decision whether 
to meet the definition of investment manager under ERISA is based on 
factors unrelated to the form or format of their registration. It is 
therefore expected that those state-registered advisers who filed paper 
copies of their state registration forms with the Secretary chose to do 
so to gain an advantage in securing appointments by plan fiduciaries.
    In any case, this proposed regulation will not change the content 
of the filings for these advisers because all states accept the joint 
SEC and state filing form (Form ADV) for state registration, and with 
certain exceptions, all of the copies submitted to the Secretary were 
made on Form ADV.\7\ Mandatory use of the IARD will, however, change 
the format and manner in which the information is transmitted. While 
the Department expects advisers to incur a cost to establish a 
procedure for electronic filing through the IARD plus an annual fee, 
the change to an electronic format and transmission method is expected 
to be more efficient and less costly over time. Use of the IARD will 
reduce the paper handling, filing, and mailing costs associated with 
providing copies to the State or States as well as to the Secretary, 
and reduce handling to obtain and reproduce signatures. The SEC cited 
similar efficiency gains in its regulatory impact analysis of the final 
rule implementing mandatory electronic filing for federally regulated 
advisers. Securities and Exchange Commission, Electronic Filing by 
Investment Advisers; Final Rule, 65 FR 57438, Sept. 22, 2000.
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    \7\ Several exceptions were observed; in those cases, the 
adviser submitted a copy of the State's action on their 
registration, such as a license or approval form, rather than the 
registration form itself. In each case, other advisers' filings for 
the same State were examined to confirm that the state did accept 
Form ADV filings.
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    The proposed regulation will directly affect only those investment 
advisers who wish to become or remain as investment managers under 
section 3(38) of ERISA, who generally have $25 million or less under 
management and consequently do not register with the SEC, and who 
register only in states that do not mandate use of the IARD to satisfy 
state registration requirements. Copies of registration forms submitted 
to the Secretary by State-registered investment advisers indicate that 
about 500 State-registered advisers have registered in only a non-IARD 
state.\8\ Prior to the implementation of the IARD and many States' 
decisions to mandate use of the IARD to meet state adviser registration 
requirements, about 1,500 advisers provided paper copies of their state 
registration forms to the Secretary. Based on the data contained in 
those filings, about 1,000 of these already have the capability to file 
electronically because they are required to register in states that 
mandate use of the IARD. The Department therefore assumes that this 
proposed regulation would affect only those advisers that register only 
in non-IARD states.
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    \8\ California, Florida, Kentucky, South Carolina, and West 
Virginia at the time of this writing.
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    Under existing requirements, State-registered advisers incur a 
State registration filing fee with every State in which they are 
required to register, plus postage and handling fees for their 
submissions. Such fees vary by State. Most if not all of the 500 
advisers potentially affected by this proposed regulation now register 
in only one state. When advisers registered only in non-IARD States 
register through the IARD, the appropriate state registration fee will 
be forwarded to the state, such that there will be no net change in 
state filing fees.
    The Advisers Act and Form ADV allow for the requirement that states 
be provided registration statements. To facilitate state registration, 
the registrant checks the appropriate boxes on the form for each 
applicable state, and the IARD then distributes the required 
information electronically to those states. States will be unaffected 
because they will continue to receive existing fees, although they will 
be transmitted in a different manner.
    These advisers would, however, newly incur the IARD initial filing 
fee of $150 for advisers of the size under consideration here, and an 
annual filing fee of $100. It is also expected that the 500 state-
registered advisers will incur a cost for the set-up of the electronic 
filing capability, and an expenditure of time to adjust internal 
procedures and put existing information into an electronic format. 
Filing fees for the first year are expected to total $75,000 in the 
first year and $50,000 in each subsequent year for these advisers.
    The cost of the electronic filing set-up is not known. The SEC did 
not quantify the cost of set-up in the final rule cited above that 
pertained to mandatory use of the IARD for registration with the SEC. 
However, for the purpose of this discussion, the cost for establishment 
of electronic filing capability has been estimated to be $500, or 
$250,000 for the 500 advisers affected. This is a one-time cost based 
on available information on annual fees charged to SEC registrants by 
commercial providers of service in the industry.\9\ An examination of a 
sample of the 500 individual filings showed that many of the advisers 
in question already use the software of a single provider for 
completing their Form ADV. Because this provider performs services to 
IARD filers who are currently SEC registrants as well, we have assumed 
that their range of services includes a method of facilitating 
electronic filing. It is also assumed that all advisers make use of 
electronic technology in the normal course of business and will not be 
required to make substantial technological changes as a result of this 
proposal.
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    \9\ Such fees are used here as a proxy only; the fees do not 
pertain specifically to electronic set-up or transmission.
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    A one-time cost is also estimated for the time required for the 
adviser to adjust its internal procedures to input data electronically, 
if necessary. A comparison of a sample of the paper

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filings received with IARD data indicated that these advisers had not 
also filed electronically with IARD. It seems likely that many advisers 
already prepare the forms electronically, regardless of whether they 
submit them electronically. To account for preparation for electronic 
transmission, it has been estimated that the advisers will incur the 
cost of two hours of a financial professional's time at $68 per hour, 
for a cost of $136 per adviser and a total of $68,000.
    The estimated one-time cost of this proposal totals $393,000. The 
ongoing cost of maintaining registration information and completing and 
filing Form ADV is not accounted for here because the advisers prepare 
and file such forms to meet state registration requirements and would 
continue to do so without regard to this proposed regulation. The 
ongoing incremental cost of this proposal is therefore $100 per adviser 
per year, or $50,000.
    The Department considered alternatives to this proposal, including 
issuing no guidance and implementing a standard that would provide the 
adviser an option to either file a print copy of its state registration 
or make use of the IARD. The value of greater efficiency through the 
elimination of dual sources of registration information and promotion 
of greater accessibility of consistent information through electronic 
methods was considered to outweigh the relatively modest estimated cost 
of about $800 per adviser in the first year, and $100 per adviser in 
each subsequent year. As a result, the Department elected to issue this 
proposal and seek public comment on its views.

Executive Order 12866

    Under Executive Order 12866, the Department must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f), the order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule (1) having an annual effect on the economy of $100 million or 
more, or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    Pursuant to the terms of the Executive Order, it has been 
determined that this action is ``significant'' within the meaning of 
section 3(f)(4) of the Executive Order and has therefore been reviewed 
by OMB. The Department has also undertaken the assessment of the costs 
and benefits of this regulatory action presented above.

Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department of Labor conducts a preclearance consultation 
program to provide the general public and federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 (PRA 
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data 
can be provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the impact of collection requirements on respondents 
can be properly assessed.
    Currently, EBSA is soliciting comments concerning the proposed 
information collection request (ICR) included in this Notice of 
Proposed Rulemaking concerning Electronic Registration Requirements for 
Investment Advisers to be Investment Managers Under Title I of ERISA 
(ERISA Investment Manager Electronic Registration). A copy of the ICR 
may be obtained by contacting the individual identified in the PRA 
Addresses section below.
    The Department has submitted a copy of the proposed information 
collection to OMB in accordance with 44 U.S.C. 3507(d) for review of 
its information collections. The Department and OMB are particularly 
interested in comments that:
    [sbull] Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    [sbull] Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
    [sbull] Enhance the quality, utility, and clarity of the 
information to be collected; and
    [sbull] Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503; Attention: Desk Officer for the 
Employee Benefits Security Administration. Although comments may be 
submitted through February 9, 2004, OMB requests that comments be 
received within 30 days of publication of the Notice of Proposed 
Rulemaking to ensure their consideration.
    PRA Addresses: Address requests for copies of the ICR to Joseph S. 
Piacentini, Office of Policy and Research, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue, 
NW., Room N-5718, Washington, DC 20210. Telephone (202) 693-8410; Fax: 
(202) 219-5333. These are not toll-free numbers.
    The Department is issuing these proposed rules to establish the 
uniform availability of investment adviser registration information in 
a centralized electronic database. The proposed rule would affect 
investment advisers that register with the states rather than SEC by 
virtue of the requirements of NSMIA, who do not currently register 
electronically through the IARD, and who wish to fall within the 
definition of investment manager for purposes of ERISA section 
3(38)(B). Such advisers currently file a paper copy of the applicable 
state registration form with the Secretary of Labor pursuant to section 
3(38)(B)(ii) of the statute. The information collection is found in the 
proposed regulation at section 2520.3-38(b). The basis for the burden 
estimates is found in the discussion above.
    Type of Review: New collection.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: ERISA Investment Manager Electronic Registration.
    OMB Number: 1210-0NEW.
    Affected Public: Individuals or households; Business or other for-
profit.
    Respondents: 500.
    Frequency of Response: Annually.
    Responses: 500.
    Estimated Total Burden Hours: 1,000.
    Total Annualized Capital/Startup Costs: $275,000.
    Total Burden Cost (Operating and Maintenance): $50,000.

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    Total Annualized Cost: $325,000.
    After the year of implementation, the startup cost will be fully 
defrayed.The ongoing annual operating and maintenance cost will be 
$50,000.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, this proposed rule does not 
include any federal mandate that may result in expenditures by State, 
local, or tribal governments in the aggregate of more than $100 
million, or increased expenditures by the private sector of more than 
$100 million.

Small Business Regulatory Enforcement Fairness Act

    The rule being issued here is subject to the Congressional Review 
Act provisions of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (5 U.S.C. 801 et seq.) and, if finalized, will be 
transmitted to Congress and the Comptroller General for review. The 
rule is not a ``major rule'' as that term is defined in 5 U.S.C. 804, 
because it is not likely to result in (1) an annual effect on the 
economy of $100 million or more; (2) a major increase in costs or 
prices for consumers, individual industries, or Federal, State, or 
local government agencies, or geographic regions; or (3) significant 
adverse effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises in domestic or export markets.

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.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a proposed rule will not 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 at the time of the publication 
of the notice of proposed rulemaking describing the impact of the rule 
on small entities and seeking public comment on such impact. Small 
entities include small businesses, organizations and governmental 
jurisdictions.
    For purposes of analysis under the RFA, EBSA normally considers a 
small entity to be an employee benefit plan with fewer than 100 
participants, on the basis of the definition found in section 104(a)(2) 
of ERISA. However, this proposed regulation pertains to investment 
advisers that are prohibited from registering with the SEC pursuant to 
section 203(A) of the Advisers Act and SEC rules. This generally 
includes those advisers that have assets of less than $25 million under 
management. In its final rule relating to Electronic Filing by 
Investment Advisers (65 FR 57445, note 86), the SEC states that for 
purposes of the Advisers Act and the RFA, an investment adviser 
generally is a small entity if (a) it manages assets of less than $25 
million reported on its most recent Schedule I to Form ADV, (b) it does 
not have total assets of $5 million or more on the last day of the most 
recent fiscal year, and (c) it is not in a control relationship with 
another investment adviser that is not a small entity (Rule 0-7 under 
the Advisers Act).
    Because the entities potentially affected by this rule are similar 
if not identical to those that fall within the SEC definition of small 
entity for RFA purposes, and because the regulation is expected to have 
a direct impact on an existing cost of doing business that investment 
advisers would assume without regard to this proposal, but no economic 
impact that would be passed on to employee benefit plans, the 
Department considers it appropriate in this limited circumstance to use 
the SEC definition for evaluating potential impacts on small entities. 
The Department invites comments on its election to use this definition. 
Using this definition, the Department certifies that this proposed 
regulation would not have a significant economic impact on a 
substantial number of small entities. The factual basis for this 
conclusion is described below.
    The SEC States that of about 20,000 investment advisers in the 
United States, some 12,000 do not file with them. As discussed above, 
approximately 500 investment advisers are expected to incur costs under 
this regulation. This represents 2.5 percent of the approximately 
20,000 advisers doing business in the U.S., or 4 percent of the 12,000 
small advisers that do not currently file with the SEC. Thus the number 
of advisers that will incur costs under this regulation is substantial 
neither in absolute terms nor as a fraction of the universe of all or 
of small advisers.
    In addition, the economic impact of the proposal is not expected to 
be significant for any small entity. Seeking investment manager status 
for purposes of ERISA is not mandatory; small advisers presumably make 
efforts to meet the terms of the ERISA investment manager definition 
only when they compute a net benefit for doing so. The proposed 
regulation will mandate electronic submission of small adviser's 
registration information, but will not change the content or other 
requirements for those registrations. The average cost for affected 
advisers is estimated to be small: about $800 in the initial year, and 
$100 in each following year. It is possible that some portion of this 
cost will be passed on to plans.
    On this basis, the Department certifies that this proposed 
regulation would not have a significant economic impact on a 
substantial number of small entities. The Department invites comments 
on the potential impact of this proposed regulation on small entities, 
and on ways in which costs may be limited within the stated objectives 
of this proposal.

Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires the adherence to specific 
criteria by federal agencies in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. This proposed rule does not have 
federalism implications because it has no substantial direct effect on 
the States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Section 514 of ERISA provides, with 
certain exceptions specifically enumerated, that the provisions of 
Titles I and IV of ERISA supersede any and all laws of the States as 
they relate to any employee benefit plan covered under ERISA. Although 
the requirements in this proposed rule do alter the fundamental 
reporting and disclosure requirements of section 3(38)(B) of ERISA with 
respect to state-registered investment managers, because the duty of 
these state-registered advisers to report to the states exists 
independently of ERISA, and the proposed rule merely prescribes that 
investment advisers seeking ERISA investment manager status use a 
specific filing method that is accepted by all states and available as 
a choice in all states for registration purposes, there is

[[Page 68715]]

neither a direct implication for the States, nor is there a direct 
effect on the relationship or distribution of power between the 
national government and the States. This proposal only affects those 
State-registered investment advisers who choose to seek investment 
manager status under section 3(38) of ERISA, advisers not seeking such 
status are unaffected by this proposed regulation.

Statutory Authority

    The proposed regulation would be adopted pursuant to the authority 
contained in section 505 of ERISA (Pub. L. 93-406, 88 Stat. 894; 29 
U.S.C. 1135), and the Act of November 10, 1997, Sec. 1, Pub. L. 105-72, 
111 Stat. 1457, and under Secretary of Labor's Order 1-2003, 68 FR 5374 
(Feb. 3, 2003).

List of Subjects in 29 CFR Part 2510

    Employee benefit plans, Employee Retirement Income Security Act, 
Pensions, Plan assets.

PART 2510--[AMENDED]

    1. The authority citation for part 2510 is revised 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 1-2003, 68 FR 
5374; Sec. 2510.3-101 also issued under sec. 102 of Reorganization 
Plan No. 4 of 1978, 43 FR 47713, 3 CFR, 1978 Comp., p. 332 and E.O. 
12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275, and 29 U.S.C. 1135 
note. Sec. 2510.3-102 also issued under sec. 102 of Reorganization 
Plan No. 4 of 1978, 43 FR 47713, 3 CFR, 1978 Comp., p. 332 and E.O. 
12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275. Section 2510.3-38 is 
also issued under Sec. 1, Pub. L. 105-72, 111 Stat. 1457.

    2. Add Sec.  2510.3-38 to read as follows:


2510.3-38  Filing requirements for State registered investment advisers 
to be investment managers.

    (a) General. Section 3(38) of the Act sets forth the criteria for a 
fiduciary to be an investment manager for purposes of section 405 of 
the Act. Subparagraph (B)(ii) of section 3(38) of the Act provides 
that, in the case of a fiduciary who is not registered under the 
Investment Advisers Act of 1940 by reason of paragraph (1) of section 
203A(a) of such Act, the fiduciary must be registered as an investment 
adviser under the laws of the State in which it maintains its principal 
office and place of business, and, at the time the fiduciary files 
registration forms with such State to maintain the fiduciary's 
registration under the laws of such State, also files a copy of such 
forms with the Secretary of Labor. The purpose of this section is to 
set forth the exclusive means for investment advisers to satisfy the 
filing obligation with the Secretary described in subparagraph (B)(ii) 
of section 3(38) of the Act.
    (b) Filing requirement. To satisfy the filing requirement with the 
Secretary in section 3(38)(B)(ii) of the Act, a fiduciary must be 
registered as an investment adviser with the State in which it 
maintains its principal office and place of business and file through 
the Investment Adviser Registration Depository (IARD), in accordance 
with applicable IARD requirements, the information required to be 
registered and maintain the fiduciary's registration as an investment 
adviser in such State. Submitting to the Secretary investment adviser 
registration forms filed with a State does not constitute compliance 
with the filing requirement in section 3(38)(B)(ii) of the Act.
    (c) Definitions. For purposes of this section, the term 
``Investment Adviser Registration Depository'' or ``IARD'' means the 
centralized electronic depository described in 17 CFR 275.203-1.
    (d) Cross reference. Information for investment advisers on how to 
file through the IARD is available on the Securities and Exchange 
Commission Web site at http://www.sec.gov/iard.

    Signed at Washington, DC this 3rd day of December, 2003.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 03-30435 Filed 12-8-03; 8:45 am]
BILLING CODE 4510-29-P