[Federal Register Volume 71, Number 23 (Friday, February 3, 2006)]
[Notices]
[Pages 5887-5890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-1504]


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

DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Exemption Application D-11069]


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: Adoption of Amendment to PTE 84-24.

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

SUMMARY: This document amends PTE 84-24, 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. 
The amendment extends relief to purchase transactions involving 
insurance agents and brokers, pension consultants, and investment 
company principal underwriters whose affiliates exercise investment 
discretion over plan assets that are not involved in the transaction.

DATES: The amendment is effective February 3, 2006.

FOR FURTHER INFORMATION CONTACT: Christopher Motta, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, (202) 693-8540 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION: On September 14, 2004, notice was published 
in the Federal Register (69 FR 55463) of the pendency before 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 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) 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.\1\
---------------------------------------------------------------------------

    \1\ References to section 406 of ERISA as they appear throughout 
this amendment should be read to refer as well to the corresponding 
provisions of section 4975 of the Internal Revenue Code of 1986, as 
amended (the Code).
---------------------------------------------------------------------------

    The amendment to PTE 84-24 was proposed by the Department 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\ The 
notice of pendency gave interested persons an opportunity to comment or 
to request a hearing on the proposed amendment. The Department received 
one comment on the proposed amendment. That comment, from the 
Investment Company Institute, supported the amendment as proposed. The 
Department did not receive a request for a public hearing.
---------------------------------------------------------------------------

    \2\ Section 102 of the Reorganization Plan No. 4 of 1978 (5 
U.S.C. App. at 214, 2000 ed.) generally transferred the authority of 
the Secretary of the Treasury to issue administrative exemptions 
under section 4975 of the Code to the Secretary of Labor.
---------------------------------------------------------------------------

    For the sake of convenience, the entire text of PTE 84-24, as 
amended, has been reprinted in this notice.

Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
a 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 amendment has been drafted and reviewed in accordance with 
Executive Order 12866, section 1(b), Principles of Regulation. The 
Department has determined that this 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.

[[Page 5888]]

Paperwork Reduction Act

    This amendment does not contain any ``collection of information'' 
as defined in the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.) (PRA) and therefore is not subject to the requirements of the 
PRA. The recordkeeping requirement that is one of the conditions 
imposed under PTE 84-24 (section V(e)(1)), both prior to this amendment 
and hereinafter, has been approved by OMB as part of the information 
collection request assigned OMB control number 1210-0059. The approval 
is currently scheduled to expire on August 31, 2008.

Description of the Exemption, as Amended

    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). Section VI defines certain terms that are used in 
the class exemption. Section VI(b) defines the terms ``insurance agent 
or broker,'' ``pension consultant,'' ``insurance company,'' 
``investment company,'' and ``principal underwriter'' to mean such 
persons and any affiliates thereof.
    Section V excludes certain persons from engaging in transactions 
covered by the class exemption. In this regard, sections V(a)(1) and 
V(a)(3) provided that the insurance agent or broker, pension 
consultant, insurance company, or investment company principal 
underwriter may not engage in a covered transaction if such person is a 
trustee of the plan (other than a nondiscretionary trustee who does not 
render investment advice with respect to any assets of the plan) or a 
fiduciary who is expressly authorized in writing to manage, acquire or 
dispose of the assets of the plan on a discretionary basis. The 
amendment adopted by this notice provides a limited exception to such 
restrictions (which otherwise remain in effect). In this regard, 
section V(a), as amended, now provides that, notwithstanding the 
restriction contained therein, an insurance agent or broker, pension 
consultant, insurance company, or investment company principal 
underwriter that is affiliated with a trustee or investment manager 
with respect to a plan may engage in a transaction described in section 
III(a) through (d) of this exemption on behalf of a 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.\3\
---------------------------------------------------------------------------

    \3\ As described in the notice of proposed amendment to PTE 84-
24, the Department and the Service previously took the view that the 
class exemption extends relief to a plan's purchase of an insurance 
or annuity contract through an agent or broker affiliated with an 
entity that manages certain of the plan's assets to the extent that 
the investment manager is 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. See letter from the Department 
of the Service to John A. Cardon, Esq., et al., part 6 (October 31, 
1977).
---------------------------------------------------------------------------

    The amendment adopted in this notice also modifies the definition 
of the term ``nondiscretionary trust services'' in section VI(g) of PTE 
84-24 to permit a party to use the exemption, notwithstanding its 
affiliation with a nondiscretionary trustee, including a directed 
trustee that performs such services pursuant to directions in 
accordance with ERISA section 403(a)(1), 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; nor 
does it 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) In accordance with section 408(a) of ERISA and 4975(c)(2) of 
the Code, the Department makes the following determinations:
    (i) The amendment set forth herein is administratively feasible;
    (ii) the amendment set forth herein is in the interests of plans 
and of their participants and beneficiaries; and
    (iii) the amendment set forth herein is protective of the rights of 
participants and beneficiaries of plans;
    (3) The amendment is applicable to a particular transaction only if 
the transaction satisfies the conditions specified in the exemption; 
and
    (4) 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.

Exemption

    Accordingly, PTE 84-24 is amended under the authority of section 
408(a) of the Employee Retirement Income

[[Page 5889]]

Security Act of 1974 (the Act) and section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code), and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 
32847, August 10, 1990), as set forth below:

Section I--Retroactive Application

    The restrictions of sections 406(a)(1)(A) through (D) and 406(b) of 
the Act and the taxes imposed by section 4975 of the Code do not apply 
to any of the transactions described in section III of this exemption 
in connection with purchases made before November 1, 1977, if the 
conditions set forth in section IV are met.

Section II--Prospective Application

    The restrictions of section 406(a)(1)(A) through (D) and 406(b) of 
the Act and the taxes imposed by section 4975 of the Code do not apply 
to any of the transactions described in section III of this exemption 
in connection with purchases made after October 31, 1977, if the 
conditions set forth in sections IV and V are met.

Section III--Transactions

    (a) The receipt, directly or indirectly, 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 referred to as 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.
    (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--Conditions With Respect to Transactions Described in 
Section III

    (a) The transaction is effected by the insurance agent or broker, 
pension consultant, insurance company or investment company principal 
underwriter in the ordinary course of its business as such a person.
    (b) The transaction is on terms at least as favorable to the plan 
as an arm's-length transaction with an unrelated party would be.
    (c) The combined total of all fees, commissions and other 
consideration received by the insurance agent or broker, pension 
consultant, insurance company, or investment company principal 
underwriter:
    (1) For the provision of services to the plan; and
    (2) In connection with the purchase of insurance or annuity 
contracts or securities issued by an investment company is not in 
excess of ``reasonable compensation'' within the contemplation of 
section 408(b)(2) and 408(c)(2) of the Act and sections 4975(d)(2)and 
4975(d)(10) of the Code. If such total is in excess of ``reasonable 
compensation,'' the ``amount involved'' for purposes of the civil 
penalties of section 502(i) of the Act and the excise taxes imposed by 
section 4975 (a) and (b) of the Code is the amount of compensation in 
excess of ``reasonable compensation.''

Section V--Conditions for Transactions Described in Section III (a) 
Through (d)

    The following conditions apply solely to a transaction described in 
paragraphs (a), (b), (c) or (d) of section III:
    (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.
    (b)(1) With respect to a transaction involving the purchase with 
plan assets of an insurance or annuity contract or the receipt of a 
sales commission thereon, the insurance agent or broker or pension 
consultant provides to an independent fiduciary with respect to the 
plan prior to the execution of the transaction the following 
information in writing and in a form calculated to be understood by a 
plan fiduciary who has no special expertise in insurance or investment 
matters:
    (A) If the agent, broker, or consultant is an affiliate of the 
insurance company whose contract is being recommended, or if the 
ability of such agent, broker or consultant to recommend insurance or 
annuity contracts is limited by any agreement with such insurance 
company, the nature of such affiliation, limitation, or relationship;
    (B) The sales commission, expressed as a percentage of gross annual 
premium payments for the first year and for each of the succeeding 
renewal years, that will be paid by the insurance company to the agent, 
broker or consultant in connection with the purchase of the recommended 
contract; and
    (C) For purchases made after June 30, 1979, a description of any 
charges, fees, discounts, penalties or adjustments which may be imposed 
under the recommended contract in connection with the purchase, 
holding, exchange, termination or sale of such contract.
    (2) Following the receipt of the information required to be 
disclosed in paragraph (b)(1), and prior to the execution of the 
transaction, the independent fiduciary acknowledges in writing receipt 
of such information and approves the transaction on behalf of the plan. 
Such fiduciary may be an employer of employees covered by the plan, but 
may not be an insurance agent or broker, pension consultant or 
insurance company involved in the transaction. Such fiduciary may not 
receive, directly or indirectly (e.g. through an affiliate), any 
compensation

[[Page 5890]]

or other consideration for his or her own personal account from any 
party dealing with the plan in connection with the transaction.
    (c)(1) With respect to a transaction involving the purchase with 
plan assets of securities issued by an investment company or the 
receipt of a sales commission thereon by an investment company 
principal underwriter, the investment company principal underwriter 
provides to an independent fiduciary with respect to the plan, prior to 
the execution of the transaction, the following information in writing 
and in a form calculated to be understood by a plan fiduciary who has 
no special expertise in insurance or investment matters:
    (A) If the person recommending securities issued by an investment 
company is the principal underwriter of the investment company whose 
securities are being recommended, the nature of such relationship and 
of any limitation it places upon the principal underwriter's ability to 
recommend investment company securities;
    (B) The sales commission, expressed as a percentage of the dollar 
amount of the plan's gross payment and of the amount actually invested, 
that will be received by the principal underwriter in connection with 
the purchase of the recommended securities issued by the investment 
company; and
    (C) For purchases made after December 31, 1978, a description of 
any charges, fees, discounts, penalties, or adjustments which may be 
imposed under the recommended securities in connection with the 
purchase, holding, exchange, termination or sale of such securities.
    (2) Following the receipt of the information required to be 
disclosed in paragraph (c)(1), and prior to the execution of the 
transaction, the independent fiduciary approves the transaction on 
behalf of the plan. Unless facts or circumstances would indicate the 
contrary, such approval may be presumed if the fiduciary permits the 
transaction to proceed after receipt of the written disclosure. Such 
fiduciary may be an employer of employees covered by the plan, but may 
not be a principal underwriter involved in the transaction. Such 
fiduciary may not receive, directly or indirectly (e.g. through an 
affiliate), any compensation or other consideration for his or her own 
personal account from any party dealing with the plan in connection 
with the transaction.
    (d) With respect to additional purchases of insurance or annuity 
contracts or securities issued by an investment company, the written 
disclosure required under paragraphs (b) and (c) of this section V need 
not be repeated, unless--
    (1) More than three years have passed since such disclosure was 
made with respect to the same kind of contract or security, or
    (2) The contract or security being recommended for purchase or the 
commission with respect thereto is materially different from that for 
which the approval described in paragraphs (b) and (c) of this section 
was obtained.
    (e)(1)) In the case of any transaction described in paragraphs (a), 
(b), or (c) of section III, the insurance agent or broker (or the 
insurance company whose contract is being described if designated by 
the agent or broker), pension consultant or investment company 
principal underwriter shall retain or cause to be retained for a period 
of six years from the date of such transaction, the following:
    (A) The information disclosed pursuant to paragraphs (b), (c), and 
(d) of this section V;
    (B) Any additional information or documents provided to the 
fiduciary described in paragraphs (b) and (c) of this section V with 
respect to such transaction; and
    (C) The written acknowledgement described in paragraph (b) of this 
section.
    (2) A prohibited transaction will not be deemed to have occurred 
if, due to circumstances beyond the control of the insurance agent or 
broker, pension consultant, or principal underwriter, such records are 
lost or destroyed prior to the end of such six-year period.
    (3) Notwithstanding anything to the contrary in section 504(a)(2) 
and (b) of the Act, such records are unconditionally available for 
examination during normal business hours by duly authorized employees 
or representatives of the Department of Labor, the Internal Revenue 
Service, plan participants and beneficiaries, any employer of plan 
participants and beneficiaries, and any employee organization any of 
whose members are covered by the plan.

Section VI--Definitions

    For purposes of this exemption:
    (a) The term ``principal underwriter'' is defined in the same 
manner as that term is defined in section 2(a)(29) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(29)).
    (b) The terms ``insurance agent or broker,'' ``pension 
consultant,'' ``insurance company,'' ``investment company,'' and 
``principal underwriter'' mean such persons and any affiliates thereof.
    (c) The term ``affiliate'' of a person means:
    (1) Any person directly or indirectly controlling, controlled by, 
or under common control with such person;
    (2) Any officer, director, employee (including, in the case of 
principal underwriter, any registered representative thereof, whether 
or not such person is a common law employee of such principal 
underwriter), or relative of any such person, or any partner in such 
person; or
    (3) Any corporation or partnership of which such person is an 
officer, director, or employee, or in which such person is a partner.
    (d) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (e) The term ``relative'' means a ``relative'' as that term is 
defined in section 3(15) of the Act (or a ``member of the family'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or a sister.
    (f) The term ``master or prototype plan'' means a plan which is 
approved by the Service under Rev. Proc. 72-7, 1972-1 C.B. 715, or Rev. 
Proc. 72-8, 1972-1 C.B. 716, or their successors.
    (g) ``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 section 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.

    Signed at Washington, DC this 30th day of January, 2006.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. E6-1504 Filed 2-2-06; 8:45 am]
BILLING CODE 4520-29-P