[Federal Register Volume 69, Number 177 (Tuesday, September 14, 2004)]
[Notices]
[Pages 55463-55466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-20699]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application Number D-11069]


Proposed Amendment to Prohibited Transaction Exemption 84-24 (PTE 
84-24) for Certain Transactions Involving Insurance Agents and Brokers, 
Pension Consultants, Insurance Companies, Investment Companies and 
Investment Company Principal Underwriters

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

ACTION: Notice of proposed amendment to PTE 84-24.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed amendment to PTE 84-
24 (49 FR 13208 (April 3, 1984) as corrected at 49 FR 24819 (June 15, 
1984)). PTE 84-24 is a class exemption that provides relief for certain 
transactions relating to the purchase, with plan assets, of investment 
company securities or insurance or annuity contracts, and the payment 
of associated sales commissions to insurance agents or brokers, pension 
consultants, or investment company principal underwriters that are 
parties in interest with respect to such plan. Currently, relief is not 
available under PTE 84-24 if an affiliate of the insurance agent or 
broker, pension consultant, insurance company, or investment company 
principal underwriter is a plan trustee that has investment discretion 
over any of the assets of the plan. If this proposed amendment is 
adopted, PTE 84-24 would extend relief to transactions relating to the 
purchase by plans of investment company securities or insurance or 
annuity contracts, and the receipt of associated sales commissions by 
an insurance agent or broker, pension consultant, or investment company 
principal underwriter in situations where an affiliate of the insurance 
agent or broker, pension consultant, or investment company principal 
underwriter is a trustee with investment discretion over plan assets 
that are not involved in the transaction.

DATES: If adopted, the proposed amendment will be effective as of the 
date the granted amendment is published in the Federal Register. 
Written comments and requests for a public hearing should be received 
by the Department on or before November 15, 2004.

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, Employee Benefits Security 
Administration, Room N-5649, 200 Constitution Avenue, NW., Washington, 
DC 20210, (attention: D-11069). Interested persons are also invited to 
submit comments and/or requests for a hearing by the end of the comment 
period to the Employee Benefits Security Administration via fax to 
(202) 219-0204 or by electronic mail to: [email protected].

FOR FURTHER INFORMATION CONTACT: Christopher Motta, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, (202) 693-8544 (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 84-24. PTE 84-24 
provides an exemption from the restrictions of section 406(a)(1)(A) 
through (D) and section 406(b) of the Employee Retirement Income 
Security Act of 1974 (ERISA or the Act) \1\ and from the taxes imposed 
by section 4975(a) and (b) of the Code, by reason of section 
4975(c)(1)(A) through (F) of the Code.
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    \1\ References to section 406 of ERISA as they appear throughout 
this proposed amendment should be read to refer as well to the 
corresponding provisions of section 4975 of the Internal Revenue 
Code of 1986 (the Code).
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    The Department is proposing to amend the above-described exemption 
on its own motion, 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, 32847, August 10, 
1990).\2\
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    \2\ Section 102 of the Reorganization Plan No. 4 of 1978 (5 
U.S.C. App. 1 [1996] generally transferred the authority of the 
Secretary of the Treasury to issue administrative exemptions under 
section 4975 of the Internal Revenue Code of 1986 (the Code) to the 
Secretary of Labor.
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A. General Background

    The prohibited transaction provisions of the Act generally prohibit 
transactions between a plan and a party in interest (including a 
fiduciary) with respect to such plan. Specifically, section 
406(a)(1)(A) through (D) of the Act states that a fiduciary with 
respect to a plan shall not cause the plan to engage in a transaction, 
if he knows or should know that such transaction constitutes a direct 
or indirect--
    (A) Sale or exchange, or leasing, of any property between the plan 
and a party in interest;
    (B) Lending of money or other extension of credit between the plan 
and a party in interest;
    (C) Furnishing of goods, services, or facilities between the plan 
and a party in interest; or
    (D) Transfer to, or use by or for the benefit of, a party in 
interest, of any assets of the plan.
    In addition, section 406(b) of ERISA provides that a fiduciary with 
respect to a plan shall not--
    (1) Deal with the assets of a plan in his own interest or for his 
own account,
    (2) In his individual or in any other capacity act in any 
transaction involving the plan on behalf of a party (or represent a 
party) whose interests are adverse to the interests of the plan or the 
interests of its participants or beneficiaries, or
    (3) Receive any consideration for his own personal account from any 
party dealing with such plan in connection with a transaction involving 
the assets of the plan.
    Accordingly, unless a statutory or administrative exemption is 
applicable, the purchase with plan assets of investment company 
securities or insurance or annuity contracts from a party in interest 
would violate section 406(a) of ERISA. In addition, the receipt

[[Page 55464]]

of sales commissions by a pension consultant or insurance agent from an 
insurance company in connection with the purchase of insurance 
contracts by a plan where such pension consultant or insurance agent is 
a fiduciary with respect to the plan violates section 406(b) of ERISA.

B. Regulatory Impact Analysis

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. This proposed 
amendment has been drafted and reviewed in accordance with Executive 
Order 12866, section 1(b), Principles of Regulation. The Department has 
determined that this proposed amendment is not a ``significant 
regulatory action'' under Executive Order 12866, section 3(f). 
Accordingly, it does not require an assessment of potential costs and 
benefits under section 6(a)(3) of that order.

Paperwork Reduction Act

    This Notice of Proposed Rulemaking is not subject to the 
requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.) because it does not contain a ``collection of information'' as 
defined in 44 U.S.C. 3502(3).

C. Description of Existing Relief

    PTE 84-24 provides relief for certain classes of transactions 
involving purchases with plan assets of insurance or annuity contracts 
and of securities issued by registered investment companies, and the 
receipt of sales commissions in connection therewith. Section I and 
section II of PTE 84-24 provide retroactive and prospective relief for 
covered transactions. Section III describes the transactions covered by 
the class exemption as follows: (a) The direct or indirect receipt by 
an insurance agent or broker or a pension consultant of a sales 
commission from an insurance company in connection with the purchase, 
with plan assets of an insurance or annuity contract; (b) the receipt 
of a sales commission by a principal underwriter for an investment 
company registered under the Investment Company Act of 1940 
(hereinafter, an investment company) in connection with the purchase, 
with plan assets, of securities issued by an investment company; (c) 
the effecting by an insurance agent or broker, pension consultant or 
investment company principal underwriter of a transaction for the 
purchase, with plan assets, of an insurance or annuity contract or 
securities issued by an investment company; (d) the purchase, with plan 
assets, of an insurance or annuity contract from an insurance company; 
(e) the purchase, with plan assets, of an insurance or annuity contract 
from an insurance company which is a fiduciary or a service provider 
(or both) with respect to the plan solely by reason of the sponsorship 
of a master or prototype plan; and (f) the purchase, with plan assets, 
of securities issued by an investment company from, or the sale of such 
securities to, an investment company or an investment company principal 
underwriter, when such investment company, principal underwriter, or 
the investment company investment adviser is a fiduciary or a service 
provider (or both) with respect to the plan solely by reason of: (1) 
The sponsorship of a master or prototype plan; or (2) the provision of 
nondiscretionary trust services to the plan; or (3) both (1) and (2).
    Section IV contains general conditions applicable to all 
transactions described in section III. Section V of the class exemption 
contains conditions specific to transactions described in section 
III(a) through (d). In relevant part, section V(a)(1) provides that the 
insurance agent or broker, pension consultant, insurance company, or 
investment company principal underwriter may not be a trustee of the 
plan (other than a nondiscretionary trustee who does not render 
investment advice with respect to any assets of the plan).\3\ In 
addition, section V(a)(3) provides that such agent or broker, pension 
consultant, insurance company or principal underwriter may not be a 
fiduciary who is expressly authorized in writing to manage, acquire or 
dispose of the assets of the plan on a discretionary basis.
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    \3\ Nothing herein should be construed to imply that a 
nondiscretionary trustee is not a fiduciary under the Act. See 29 
U.S.C. Sec.  1103(a)(1). A plan may expressly provide that a trustee 
is subject to the direction of a named fiduciary who is not a 
trustee, in which case the trustee shall be subject to proper 
directions of such fiduciary which are made in accordance with the 
terms of the plan and which are not contrary to the Act.
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    Section VI of the class exemption defines certain terms contained 
in the class exemption. Specifically, section VI(b) defines the terms 
``insurance agent or broker,'' ``pension consultant,'' ``insurance 
company,'' ``investment company,'' and ``principal underwriter'' to 
include such persons and any affiliates thereof. Thus, currently, PTE 
84-24 does not permit a party to engage in a transaction with a plan if 
such party or its affiliate is a discretionary trustee or investment 
manager with respect to the plan.
    The Department and the Internal Revenue Service (the Service) 
previously took the position that in certain situations PTE 77-9, which 
was later amended and superceded by PTE 84-24, was available for the 
purchase of insurance or annuity contracts through an agent or broker 
affiliated with an investment manager that was expressly authorized in 
writing to manage, acquire or dispose of a specific portion of the 
plan's assets.\4\ In this regard, it was the view of the Department and 
the Service that the class exemption extended relief to a plan's 
purchase of an insurance or annuity contract through an agent or broker 
affiliated with an entity that managed certain of the plan's assets to 
the extent that the investment manager was not, with respect to the 
transaction, a fiduciary expressly authorized in writing to manage, 
acquire, or dispose of, on a discretionary basis, the assets of the 
plan involved in the purchase transaction.
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    \4\ See letter from the Department of Labor and the Internal 
Revenue Service to John A. Cardon, Esq., et al., part 6. (October 
31, 1977 (the Cardon Letter)).
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    This proposed amendment, if granted, will incorporate in the class 
exemption the position the Department took in the Cardon Letter 
regarding an insurance agent or broker, pension consultant, or 
investment company principal underwriter that is affiliated with an 
investment manager for plan assets not involved in the purchase 
transaction. In this regard, if this proposed amendment is granted, the 
limitation in section (V)(a)(1) with respect to trustees will not apply 
where an insurance agent or broker, pension consultant, or

[[Page 55465]]

investment company principal underwriter is affiliated with a trustee 
having investment discretion over plan assets that are not involved in 
such purchase. Accordingly, the exemption, if finalized, will be 
available to an insurance agent or broker, pension consultant, or 
investment company principal underwriter that is affiliated with a 
trustee having investment discretion over plan assets not involved in 
the transaction on the same basis as it is currently available to the 
affiliates of entities that provide investment management services to 
plans.

D. Discussion of the Proposed Exemption

    The Department is proposing this amendment in response to the 
consolidation that has occurred in the financial services industry. In 
this regard, insurance agents, brokers, pension consultants, and 
principal underwriters are now frequently affiliated with entities that 
serve as trustees to plans. These affiliations evolve as such entities 
engage in the normal course of doing business.
    The Department recognizes that it is not uncommon for a plan 
trustee to have investment discretion solely with respect to a specific 
portion of the plan's assets. Pursuant to such an arrangement, the 
portion of the plan's assets that is not under the control of the 
trustee may be managed by a plan fiduciary that is independent of such 
trustee (and its affiliates). In these situations, the Department 
believes that there would be minimal, if any, risk of abuse or loss to 
a plan and its participants and beneficiaries to the extent that an 
independent plan fiduciary directed the effectuation of a covered 
transaction through an affiliate of such trustee. In this regard, the 
Department believes that the conditions contained in PTE 84-24, 
including the review of information required to be disclosed to the 
independent fiduciary and the subsequent approval of the transaction by 
such fiduciary, are sufficient to protect the interests of affected 
plans and their participants and beneficiaries. Therefore, the 
Department is proposing to amend PTE 84-24 to permit a party to engage 
in transactions described in section III (a) through (d) with a plan if 
the party is affiliated with a trustee or investment manager who does 
not have discretionary authority or control with respect to the plan 
assets involved in the transaction other than as a nondiscretionary 
trustee.
    The Department is proposing to modify section V(g) of PTE 84-24 to 
clearly state that a party may use the exemption even if such party has 
an affiliate that serves as a nondiscretionary trustee, or a directed 
trustee, with respect to the plan assets involved in the transaction.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of ERISA and section 4975(c)(2) of the Code does 
not relieve a fiduciary, or other party in interest or disqualified 
person with respect to a plan, from certain other provisions of ERISA 
and the Code, including any prohibited transaction provisions to which 
the exemption does not apply and the general fiduciary responsibility 
provisions of section 404 of ERISA which require, among other things, 
that a fiduciary discharge his or her duties respecting the plan solely 
in the interests of the participants and beneficiaries of the plan and 
in a prudent fashion in accordance with section 404(a)(1)(B) of ERISA. 
Additionally, the fact that a transaction is the subject of an 
exemption does not affect the requirement of section 401(a) of the Code 
that the plan must operate for the exclusive benefit of the employees 
of the employer maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of 
ERISA and 4975(c)(2) of the Code, the Department must find that the 
exemption is administratively feasible, in the interests of the plan 
and of its participants and beneficiaries, and protective of the rights 
of participants and beneficiaries of the plan;
    (3) If granted, the proposed amendment is applicable to a 
particular transaction only if the transaction satisfies the conditions 
specified in the exemption; and
    (4) 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 or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction.

Written Comments and Hearing Request

    The Department invites all interested persons 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 
received 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 exemption. Comments received will be available for public 
inspection at the above address.

Proposed Amendment

    Under section 408(a) of the Act and section 4975(c)(2) of the Code 
and in accordance with the procedures set forth in 29 CFR 2570, Subpart 
B (55 FR 32836, 32847, August 10, 1990), the Department proposes to 
amend PTE 84-24 as set forth below:
    1. Section V(a) is amended to read: ``(a) The insurance agent or 
broker, pension consultant, insurance company, or investment company 
principal underwriter is not (1) a trustee of the plan (other than a 
nondiscretionary trustee who does not render investment advice with 
respect to any assets of the plan); (2) a plan administrator (within 
the meaning of section 3(16)(A) of the Act and section 414(g) of the 
Code), (3) a fiduciary who is expressly authorized in writing to 
manage, acquire or dispose of the assets of the plan on a discretionary 
basis, or (4) for transactions described in sections III (a) through 
(d) entered into after December 31, 1978, an employer any of whose 
employees are covered by the plan. Notwithstanding the above, an 
insurance agent or broker, pension consultant, insurance company, or 
investment company principal underwriter that is affiliated with a 
trustee or an investment manager (within the meaning of section VI(b)) 
with respect to a plan may engage in a transaction described in section 
III(a) through (d) of this exemption on behalf of the plan if such 
trustee or investment manager has no discretionary authority or control 
over the plan assets involved in the transaction other than as a 
nondiscretionary trustee.''
    2. Section V(g) is amended to read: The term ``nondiscretionary 
trust services'' means custodial services, services ancillary to 
custodial services, none of which services are discretionary, duties 
imposed by any provisions of the Code, and services performed pursuant 
to directions in accordance with ERISA Sec.  403(a)(1). The term 
``nondiscretionary trustee'' of a plan means a trustee whose powers and 
duties with respect to the plan are limited to the provision of 
nondiscretionary trust services. For purposes of this exemption, a 
person who is otherwise a nondiscretionary trustee will not fail to be 
a nondiscretionary trustee solely by reason of his having been 
delegated, by the sponsor of a master or prototype plan, the power to 
amend such plan.


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    Signed at Washington, DC, this 9th day of September, 2004.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 04-20699 Filed 9-13-04; 8:45 am]
BILLING CODE 4520-29-P