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					                                           49924

                                           Notices                                                                                                         Federal Register
                                                                                                                                                           Vol. 73, No. 164

                                                                                                                                                           Friday, August 22, 2008



                                           This section of the FEDERAL REGISTER                    submitted to the Department of Labor on                 are to sections of ERISA unless
                                           contains documents other than rules or                  or before October 6, 2008.                              otherwise indicated.
                                           proposed rules that are applicable to the               ADDRESSES: To facilitate the receipt and
                                           public. Notices of hearings and investigations,                                                                 A. Background
                                           committee meetings, agency decisions and
                                                                                                   processing of comment letters, the
                                                                                                   Employee Benefits Security                                 Section 3(21)(A)(ii) of the Act
                                           rulings, delegations of authority, filing of                                                                    includes within the definition of
                                           petitions and applications and agency                   Administration (EBSA) encourages
                                                                                                   interested persons to submit their                      ‘‘fiduciary’’ a person that renders
                                           statements of organization and functions are
                                           examples of documents appearing in this                 comments electronically by e-mail to e-                 investment advice for a fee or other
                                           section.                                                ORI@dol.gov (Subject: Investment                        compensation, direct or indirect, with
                                                                                                   Advice Class Exemption), or by using                    respect to any moneys of other property
                                                                                                   the Federal eRulemaking portal at                       of a plan, or has any authority or
                                           DEPARTMENT OF LABOR                                     http://www.regulations.gov (follow                      responsibility to do so.2 The prohibited
                                                                                                   instructions for submission of                          transaction provisions of ERISA and the
                                           Employee Benefits Security                              comments). Persons submitting                           Code prohibit an investment advice
                                           Administration                                          comments electronically are encouraged                  fiduciary from using the authority,
                                                                                                   not to submit paper copies. Persons                     control or responsibility that makes it a
                                           RIN 1210–ZA14                                                                                                   fiduciary to cause itself, or a party in
                                                                                                   interested in submitting paper copies
                                                                                                   should send or deliver their comments                   which it has an interest that may affect
                                           Proposed Class Exemption for the
                                                                                                   to the Office of Regulations and                        its best judgment as a fiduciary, to
                                           Provision of Investment Advice to
                                                                                                   Interpretations, Employee Benefits                      receive additional fees. As a result, in
                                           Participants and Beneficiaries of Self-
                                                                                                   Security Administration, Attn:                          the absence of a statutory or
                                           Directed Individual Account Plans and
                                                                                                   Investment Advice Class Exemption,                      administrative exemption, fiduciaries
                                           IRAs
                                                                                                   Room N–5655, U.S. Department of                         are prohibited from rendering
                                           AGENCY: Employee Benefits Security                      Labor, 200 Constitution Avenue, NW.,                    investment advice to plan participants
                                           Administration, DOL.                                    Washington, DC 20210. All comments                      regarding investments that result in the
                                           ACTION: Notice of proposed class                        will be available to the public, without                payment of additional advisory and
                                           exemption.                                              charge, online at http://                               other fees to the fiduciaries or their
                                                                                                   www.regulations.gov and http://                         affiliates.
                                           SUMMARY: This document contains a                                                                                  With the growth of participant-
                                                                                                   www.dol.gov/ebsa and at the Public
                                           notice of pendency before the                                                                                   directed individual account plans, there
                                                                                                   Disclosure Room, N–1513, Employee
                                           Department of Labor (Department) of a                                                                           has been an increasing recognition of
                                                                                                   Benefits Security Administration, U.S.
                                           proposed class exemption from certain                                                                           the importance of investment advice to
                                                                                                   Department of Labor, 200 Constitution
                                           prohibited transaction restrictions of the                                                                      participants and beneficiaries in such
                                                                                                   Avenue, NW., Washington, DC 20210.
                                           Employee Retirement Income Security                                                                             plans. Most recently, Congress and the
                                                                                                   FOR FURTHER INFORMATION CONTACT: Fred                   Administration, responding to the need
                                           Act of 1974, as amended (ERISA, or the
                                           Act), and from certain taxes imposed by                 Wong, Office of Regulations and                         to afford participants and beneficiaries
                                           the Internal Revenue Code of 1986, as                   Interpretations, Employee Benefits                      greater access to professional
                                           amended (Code). If granted, the                         Security Administration, (202) 693–                     investment advice, amended the
                                           proposed exemption would permit the                     8500. This is not a toll free number.                   prohibited transaction provisions of
                                           provision of investment advice                          SUPPLEMENTARY INFORMATION: This                         ERISA and the Code, as part of the
                                           described in section 3(21)(A)(ii) of the                document contains a notice of pendency                  Pension Protection Act of 2006 (PPA),3
                                           Act by a fiduciary adviser to a                         before the Department of a proposed                     to permit a broader array of investment
                                           participant or beneficiary in an                        class exemption from the restrictions of                advice providers to offer their services
                                           individual account plan or individual                   section 406(a) and 406(b) of the Act and                to participants and beneficiaries
                                           retirement accounts (and certain similar                from the taxes imposed by section                       responsible for investment of assets in
                                           plans), the acquisition, holding or sale                4975(a) and (b) of the Code, by reason                  their individual accounts and,
                                           of a security or other property pursuant                of section 4975(c)(1) of the Code. The                  accordingly, for the adequacy of their
                                           to the investment advice, and the direct                Department is proposing this class                      retirement savings. Specifically, section
                                           or indirect receipt of fees or other                    exemption pursuant to section 408(a) of                 601(a) of the PPA added a statutory
                                           compensation by the fiduciary adviser                   the Act and section 4975(c)(2) of the                   exemption under sections 408(b)(14)
                                           (or any employee, agent, registered                     Code, and in accordance with the                        and 408(g) of ERISA. Parallel provisions
                                           representative or affiliate thereof) in                 procedures set forth in 29 CFR part                     were added to the Code at section
                                           connection with such transactions. The                  2570, subpart B (55 FR 32836, August                    4975(d)(17) and 4975(f)(8).4
                                           proposed exemption, if granted, would                   10, 1990).1 All section references herein
                                                                                                                                                             2 See   also 29 CFR 2510.3–21(c).
                                           affect sponsors, fiduciaries, participants
                                                                                                     1 Section                                               3 Public   Law 109–280, 120 Stat. 780 (Aug. 17,
                                           and beneficiaries of participant-directed                           102 of Reorganization Plan No. 4 of
                                                                                                   1978, 5 U.S.C. App. 1 (1996), generally transferred     2006).
                                           individual account plans, as well as
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                                                                                                   the authority of the Secretary of the Treasury to         4 See PPA section 601(b). Under Reorganization
                                           providers of investments and                            issue exemptions under section 4975(c)(2) of the        Plan No. 4 of 1978 (43 FR 47713, October 17, 1978),
                                           investment advice-related services to                   Code to the Secretary of Labor. For purposes of this    5 U.S.C. App.1, 92 Stat. 3790, the authority of the
                                           such plans.                                             proposed exemption, references to specific              Secretary of the Treasury to issue rulings under
                                                                                                   provisions of Title I of the Act, unless otherwise      section 4975 of the Code has been transferred, with
                                           DATES: Written comments on the                          specified, refer also to the corresponding provisions   certain exceptions not here relevant, to the
                                           proposed exemption should be                            of the Code.                                            Secretary of Labor. Therefore, the references in this



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                                                                          Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Notices                                          49925

                                              Section 408(b)(14) of ERISA provides                  B. Overview of Proposed Class                        resulting from the application of section
                                           that certain investment advice-related                   Exemption                                            4975 of the Code, by reason of section
                                           transactions will be exempt from the                                                                          4975(c)(1)(A) through (F) of the Code,
                                                                                                    1. General
                                           prohibitions of section 406 if the                                                                            shall not apply to the provision of
                                           requirements of section 408(g) are met.                     In general, the proposed class                    investment advice described in section
                                           Section 408(g) of ERISA requires that                    exemption, like the statutory exemption              3(21)(A)(ii) of the Act by a fiduciary
                                           investment advice must be provided by                    and proposed regulations published                   adviser to a participant or beneficiary of
                                           a fiduciary adviser under an ‘‘eligible                  thereunder (proposed 29 CFR                          an individual account plan that permits
                                           investment advice arrangement’’ that                     2550.408g–1), provides relief from                   such participant or beneficiary to direct
                                           meets a ‘‘level fee’’ requirement (ERISA                 otherwise prohibited transactions                    the investment of their individual
                                           section 408(g)(2)(A)(i)) or a ‘‘computer                 relating to the provision of investment              accounts; the acquisition, holding, or
                                           model’’ requirement (ERISA section                       advice to the participant or beneficiary             sale of a security or other property
                                           408(g)(2)(A)(ii)). However, PPA section                  with respect to a security or other                  pursuant to the investment advice; and,
                                           601(b)(3)(C) restricts the general                       property available as an investment                  except as otherwise provided in the
                                           availability of an eligible investment                   under a plan or IRA; the acquisition,                exemption, the direct or indirect receipt
                                           advice arrangement based on utilization                  holding or sale of a security or other               of fees or other compensation by the
                                           of a computer model for certain plans                    property available as an investment                  fiduciary adviser (or any employee,
                                           described in Code section 4975(e)(1)                     under a plan or IRA pursuant to the                  agent, registered representative or
                                           (collectively referred to herein as                      investment advice; and the direct or                 affiliate thereof) in connection with the
                                           Individual Retirement Accounts or                        indirect receipt of compensation by a                provision of the advice or in connection
                                           IRAs), unless the Secretary of Labor, in                 fiduciary adviser or affiliate in                    with an acquisition, holding, or sale of
                                           consultation with the Secretary of the                   connection with the provision of                     a security or other property pursuant to
                                           Treasury, determines that there is a                     investment advice or the acquisition,                the investment advice. Section II
                                           computer model investment advice                         holding or sale of a security or other               provides the same relief with respect to
                                           program that may be utilized by an IRA                   property available as an investment                  the sanctions resulting from the
                                           to provide investment advice to the                      under the plan or IRA pursuant to the                application of section 4975 of the Code,
                                           account beneficiary which meets the                      investment advice.                                   by reason of section 4975(c)(1)(A)
                                           requirements described in PPA section                       Unlike the statutory exemption and                through (F) of the Code, for investment
                                           601(b)(3)(B).5                                           proposed regulations, however, the class             advice to beneficiaries of IRAs.
                                              On December 4, 2006, the Department                   exemption would provide relief for
                                           published two Requests for Information                   individualized investment advice to                  3. Conditions—Section III
                                           in the Federal Register soliciting                       individuals following the furnishing of              General—Paragraphs (a)–(d)
                                           information to assist the Department in                  recommendations generated by a
                                                                                                    computer model or, in the case of IRAs                  Paragraphs (a) through (c) set forth
                                           the development of regulations under                                                                          general requirements relating to the
                                           ERISA section 408(b)(14) and 408(g),                     with respect to which modeling is not
                                                                                                    feasible, the furnishing of certain                  arrangements and investment advice
                                           and in making its determination with                                                                          covered by the exemption, without
                                           respect to the utilization of computer                   investment education material. The
                                                                                                    computer generated advice                            regard to whether a fiduciary adviser
                                           models for IRAs. 71 FR 70429; 71 FR                                                                           uses a computer model or levels fees in
                                           70427. Concurrent with the publication                   recommendations and investment
                                                                                                    education materials are intended to                  connection with the providing of
                                           of this document, the Department                                                                              individualized investment advice.
                                           reported to Congress its determination                   provide individual account plan
                                                                                                    participants and beneficiaries and IRA               Paragraph (a) provides that the
                                           that there exist computer models that                                                                         investment advice arrangement must be
                                           meet the requirements described in PPA                   beneficiaries with a context for
                                                                                                    assessing and evaluating the                         authorized by a plan fiduciary (or, in the
                                           section 601(b)(3)(B). In addition,                                                                            case of an IRA, the IRA beneficiary)
                                           appearing elsewhere in today’s Federal                   individualized investment advice
                                                                                                    contemplated by the exemption. Also                  other than: the person offering the
                                           Register, the Department is publishing                                                                        investment advice arrangement; any
                                           proposed regulations that would                          unlike the statutory exemption and
                                                                                                    proposed regulations, the class                      person providing designated investment
                                           implement the provisions of the                                                                               options under the plan; or any affiliate
                                           statutory exemption for the provision of                 exemption, as discussed below, applies
                                                                                                    the fee-leveling limits solely to the                of either. The terms designated
                                           investment advice to participants and                                                                         investment options and affiliate are
                                           beneficiaries under sections 408(b)(14)                  compensation received by the
                                                                                                    employee, agent or registered                        defined in Section IV, described below.
                                           and 408(g), and parallel provisions in                                                                        Paragraph (a) further provides that for
                                           Code section 4975.                                       representative providing the advice on
                                                                                                    behalf of the fiduciary adviser, as                  purposes of such authorization, an IRA
                                              This class exemption is intended to                                                                        beneficiary will not be treated as an
                                           complement the adoption of those                         distinguished from compensation
                                                                                                    received by the fiduciary adviser on                 affiliate of a person solely by reason of
                                           implementing regulations by furthering                                                                        being an employee of such person,
                                           the availability of individualized                       whose behalf the employee, agent or
                                                                                                    registered representative is providing               thereby, enabling employees of a
                                           investment advice to both participants                                                                        fiduciary adviser to take advantage of
                                           and beneficiaries in participant-directed                such advice.
                                                                                                                                                         the investment advice arrangements
                                           individual account plans and IRA                         2. Scope of Exemption—Sections I and                 offered by their employer under the
                                           beneficiaries under circumstances not                    II                                                   exemption. Paragraph (b) requires that
                                           encompassed in the statutory exemption                      Sections I and II of the proposal                 the provided investment advice be
                                           or implementing regulations, as                          define the scope of the class exemption.             based on certain generally accepted
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                                           described below.                                         Section I provides that, with respect to             investment theories. Paragraph (c)
                                                                                                    the provision of advice to participants              requires that the investment advice
                                           notice to specific sections of ERISA should be taken
                                           as referring also to the corresponding sections of the   and beneficiaries of individual account              must take into account information
                                           Code.                                                    plans, the restrictions of sections 406(a)           furnished by a participant or
                                             5 PPA section 601(b)(3)(C)(i).                         and 406(b) of ERISA and the sanctions                beneficiary.


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                                           49926                          Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Notices

                                             Paragraph (d) of Section III requires                 applicable to a computer model that                     with regard to the effect of the definition
                                           that the fiduciary adviser must provide                 serves as the basis of an eligible                      contained in paragraph (h) of section IV
                                           advice in accordance with paragraph (e)                 investment advice arrangement under                     on the analysis in AO 2001–09A.
                                           or paragraph (f) or both. As discussed                  the statutory exemption and related                        The general requirement for computer
                                           below, paragraph (e) generally requires                 regulations (proposed 29 CFR                            model investment advice set forth in
                                           the provision of investment advice                      2550.408g–1(d)(1)). Additionally, unless                paragraph (e)(1) also applies to IRAs,
                                           generated by a computer model in                        the computer model is developed and                     unless the fiduciary adviser determines
                                           advance of providing individualized,                    maintained by a person independent of                   that the types or number of investment
                                           non-computer modeled advice.                            the fiduciary adviser (and its affiliates),             choices available to an IRA beneficiary
                                           Paragraph (f) requires that investment                  the computer model must be certified,                   reasonably precludes the use of a
                                           advice be provided in a manner with                     in accordance with ERISA section                        computer model meeting of the
                                           respect to which fees or other                          408(g)(3)(C) and related regulations                    requirements of section ERISA
                                           compensation received by an employee,                   (proposed 29 CFR 2550.408g–1(d)(2)), as                 408(g)(3)(B). See paragraph (e)(2) of
                                           agent or registered representative                      satisfying those requirements. Thus,                    Section III. If the fiduciary adviser so
                                           providing investment advice on behalf                   unless the computer model is developed                  concludes, paragraph (e)(2) of Section III
                                           of a fiduciary adviser do not vary based                and maintained by an independent                        requires that the beneficiary be provided
                                           on the investment option selected by the                person, the model must meet the same                    certain investment education-type
                                           participant or beneficiary. Paragraph (d)               requirements, including certification, as               materials, such as graphs, pie charts,
                                           also permit the provision of investment                 under the statutory exemption and                       case studies, worksheets, or interactive
                                           advice using a combination of computer                  related regulations. With respect to the                software or similar programs, that reflect
                                           generated advice and fee-leveling.                      inclusion of independently developed                    or produce asset allocation models
                                                                                                   and maintained computer models under                    taking into account the age (or time
                                           Use of Computer Models—Paragraph (e)                                                                            horizon) and risk profile of the
                                                                                                   paragraph (e)(1), the Department opined
                                             Paragraph (e)(1) requires that, prior to              in Advisory Opinion 2001–09A (Dec.                      beneficiary, to the extent known.
                                           the provision of other investment advice                14, 2001) (AO 2001–09A) that an                         Paragraph (e)(2) also sets forth some
                                           covered by the class exemption,                         investment adviser providing                            general standards intended to ensure the
                                           participants and beneficiaries must be                  investment advice regarding                             reasonableness and objectivity of the
                                           furnished with investment                               investments that pay additional fees to                 materials furnished. These materials,
                                           recommendations generated by a                          the adviser could avoid prohibited                      like the investment advice generated by
                                           computer model. The computer model                      transaction issues under ERISA section                  a computer model required under
                                           must either meet the requirements of                    406(b)(1) and (3) by utilizing computer                 paragraph (e)(1), are intended to provide
                                           ERISA section 408(g)(3)(B) and (C) 6 or                 methodologies developed, maintained                     a means by which a participant or
                                           meet the requirements of section                        and overseen by an independent person                   beneficiary may assess the
                                           408(g)(3)(B) and be designed and                        to generate the advice provided. This                   individualized advice provided by the
                                           maintained by a person independent of                   continues to be the view of the                         fiduciary adviser, taking into account
                                           the fiduciary adviser (and any of the                   Department.7 However, as with                           whether and to what extent the
                                           adviser’s affiliates) and utilize                       investment advice provided under the                    individualized advice deviates from the
                                           methodologies and parameters                            statutory exemption, the Department                     computer generated advice or
                                           determined appropriate solely by the                    believes that plan participants and                     education-type materials furnished in
                                           independent person. If the conditions of                beneficiaries may want the flexibility to               advance by the fiduciary adviser.
                                           section III are satisfied, then the class               obtain other investment advice after                       Paragraph (e)(3) of Section III requires
                                           exemption provides relief, as described                 receiving computer-generated advice,                    that the investment advice provided
                                           in sections I and II, in connection with                and advisers may be willing to offer                    does not recommend investment
                                           both the investment advice generated by                 such services. Accordingly, paragraph                   options that may generate for the
                                           the computer model and the non-                         (e)(1) similarly encompasses                            fiduciary adviser, or certain other
                                           computer model generated investment                     transactions in connection with                         persons, greater income than other
                                           advice subsequently provided.                           investment advice received after                        options of the same asset class, unless
                                             In order to satisfy paragraph (e)(1), a               investment advice generated by a                        the fiduciary adviser prudently
                                           computer model must, at least, meet the                 computer model developed and                            concludes that the recommendation is
                                           requirements of section 408(g)(3)(B) and                maintained by a person independent of                   in the best interest of the participant or
                                           the regulations issued thereunder                       the fiduciary adviser and its affiliates.               beneficiary and explains the basis for
                                                                                                   For purposes of this paragraph, the term                that conclusion to the participant or
                                              6 In general, paragraph (3)(B) of section 408(g)
                                                                                                   ‘‘independent’’ is defined in paragraph                 beneficiary. Section III(e)(4), described
                                           provides that a computer model under an                                                                         below, imposes a specific
                                           investment advice program must apply certain            (h) of Section IV. The Department notes,
                                           generally accepted investment theories, utilize         however, that it continues to believe                   documentation requirement with
                                           relevant information about the participant, utilize     that what constitutes ‘‘independent’’ for               respect to any such advice. Section
                                           prescribed objective criteria to provide asset          purposes of the analysis in AO 2001–                    III(e)(3) does not apply to investment
                                           allocation portfolios comprised of investment                                                                   advice generated solely by use of a
                                           options available under the plan, operate in a
                                                                                                   09A is an inherently factual question,8
                                           manner that is not biased in favor of certain           and that no inferences should be drawn                  computer model described in paragraph
                                           investments, and take into account all investment                                                               (e)(1)(A) or (B) of section III.
                                           options under the plan in specifying how a                 7 See Field Assistance Bulletin 2007–01 (February       Paragraph (e)(4) of Section III
                                           participant’s account balance should be invested.       2, 2007).                                               generally requires that not later than 30
                                           Paragraph (3)(C) of section 408(g) requires that a         8 See AO 2001–09A, footnote 11 (‘‘whether a
                                           computer model utilized under an investment
                                                                                                                                                           days following the provision of
                                                                                                   party is ‘independent’ for purposes of the subject
                                                                                                                                                           investment advice under paragraph (e),
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                                           advice program be certified as meeting the              analysis will generally involve a determination as
                                           requirements of paragraph (3)(B) by an eligible         to whether there exists a financial interest (e.g.,     the individual providing the advice on
                                           investment expert. Proposed regulations being           compensation, fees, etc.), ownership interest, or       behalf of the fiduciary adviser must
                                           published in today’s Federal Register provide           other relationship, agreement or understanding that
                                           further guidance with respect to the computer           would limit the ability of the party to carry out its
                                                                                                                                                           document the basis of any investment
                                           model requirements contained in ERISA section           responsibility beyond the control, direction or         option(s) recommended to a participant
                                           408(g)(3).                                              influence of the fiduciary’’).                          or beneficiary, including an explanation


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                                                                         Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Notices                                                   49927

                                           as to how such recommendation relates                   leveling requirement at the individual-               proposed 29 CFR 2550.408g–1(d)(1)(v).
                                           to the recommendations or information                   level, rather than fiduciary adviser-                 This disclosure of limitations on a
                                           provided or generated pursuant to                       entity level, without compromising the                computer model’s ability to take into
                                           paragraph (e)(1) or, if applicable,                     availability of informed, unbiased, and               account investments in qualifying
                                           paragraph (e)(2). As an example, in the                 objective investment advice for                       employer securities parallels a similar
                                           case of an IRA described in paragraph                   participants and beneficiaries.                       requirement contained in the proposed
                                           (e)(2) with respect to which a fiduciary                                                                      regulations under section 408(g)(3)
                                                                                                   Disclosure—Paragraphs (g)–(h)
                                           adviser provides several generic asset                                                                        being published today.9
                                           allocation portfolios prior to rendering                   The disclosure provisions set forth in
                                           investment advice, the documentation                    paragraph (g) of Section III generally                   In addition to the foregoing, the
                                           required by paragraph (e)(4) must                       track the disclosure provisions of the                notification must inform participants
                                           include explanations as to the asset                    proposed regulations. See proposed 29                 and beneficiaries that the fiduciary
                                           allocation portfolio on which the                       CFR 2550.408g–1(g). In this regard,                   adviser is acting as a fiduciary of the
                                           investment advice is based, including                   paragraph (g) of Section III requires that            plan in connection with the provision of
                                           reasons for its selection or deviation                  a fiduciary adviser furnish certain                   the advice, and that the participants or
                                           from those provided, and how the                        information, without charge, to a                     beneficiaries may separately arrange for
                                           recommended investments provide the                     participant or beneficiary in advance of              the provision of advice by another
                                           appropriate asset class exposures                       the initial provision of investment                   adviser, that could have no material
                                           consistent with the portfolio.                          advice under the class exemption, and                 affiliation with, and receives no fees or
                                              Paragraph (e)(4) further requires that               at least once each year thereafter during             other compensation in connection with,
                                           with respect to any investment advice                   which the adviser provides investment                 the security or other property
                                           that recommends investment options                      advice to the participant or beneficiary              recommended to the participant or
                                           that may generate for the fiduciary                     under the class exemption.                            beneficiary.
                                           adviser, or certain persons, greater                       Pursuant to paragraph (g)(1), a
                                                                                                                                                            Paragraph (g)(2)(i) provides that the
                                           income than other options of the same                   fiduciary adviser is required to provide
                                                                                                                                                         information furnished pursuant to
                                           asset class, the individual providing the               to participants and beneficiaries a
                                                                                                   written notification describing: The role             paragraph (g)(1) must be written in a
                                           investment advice on behalf of the                                                                            clear and concise manner and in a
                                           fiduciary adviser must, not later than 30               of any party that has a material
                                                                                                   affiliation or material contractual                   manner calculated to be understood by
                                           days following its provision, document
                                                                                                   relationship with the fiduciary adviser               the average plan participant and is
                                           the basis for concluding that the
                                                                                                   in the development of the computer                    sufficiently accurate and comprehensive
                                           recommendation is in the best interest
                                           of the participant or beneficiary. As                   model described in paragraph (e)(1) or                to reasonably apprise such participants
                                           with the requirements of paragraph                      materials described in section paragraph              and beneficiaries of the information
                                           (e)(3), this requirement does not apply                 (e)(2) of Section III and in the selection            required to be disclosed. Paragraph
                                           to investment advice generated solely by                of investment options available under                 (g)(2)(ii) notes that the appendix to
                                           use of a computer model described in                    the plan; the past performance and                    proposed 29 CFR 2550.408g–1 contains
                                           paragraph (e)(1)(A) or (B) of Section III.              historical rates of return of the                     a model disclosure form that may be
                                              Paragraph (e)(5) provides that the                   designated investment options available               used to provide the required notification
                                           documentation required by paragraph                     under the plan or IRA to the extent such              of information described in paragraph
                                           (e)(4) must be retained in accordance                   information is not otherwise provided;                (g)(1)(iii). Paragraph (g)(2)(ii) makes
                                           with the exemption’s record-retention                   all fees or other compensation relating               clear that use of the model is voluntary.
                                           provision, section paragraph (n) of                     to the advice that the fiduciary adviser              However, use of an appropriately
                                           Section III, described below.                           or any affiliate thereof is to receive                completed model disclosure form will
                                                                                                   (including compensation provided by                   be deemed to satisfy the requirements of
                                           Use of Fee-Leveling—Paragraph (f)                       any third party) in connection with the               paragraphs (g)(1) and (2)(i) with respect
                                              Paragraph (f) of Section III requires                provision of the advice or in connection              to such information.
                                           that any fees or other compensation                     with the sale, acquisition, or holding of                Paragraph (g)(3) indicates that
                                           (including salary, bonuses, awards,                     the security or other property; and of                required notification may be provided
                                           promotions, commissions or any other                    any material affiliation or material                  in written or electronic form.
                                           thing of value) received, directly or                   contractual relationship of the fiduciary
                                           indirectly, by an employee, agent or                    adviser or affiliates thereof in the                     Paragraph (g)(4) requires that the
                                           registered representative providing                     security or other property.                           fiduciary adviser provide, without
                                           advice on behalf of the fiduciary adviser                  The notification also is required to               charge, updated information to the
                                           pursuant to the class exemption do not                  explain the manner, and under what                    advice recipient concerning any
                                           vary depending on the basis of any                      circumstances, any participant or                     material change to the information
                                           investment option selected by a                         beneficiary information provided under                required to be provided to the advice
                                           participant or beneficiary. The                         the investment advice arrangement will                recipient under section III(g) at a time
                                           Department notes that, in contrast to the               be used or disclosed, and the types of                reasonably contemporaneous to the
                                           fee-leveling requirement under the                      services provided by the fiduciary                    change in information.
                                           statutory exemption as described above                  adviser in connection with the                           Paragraph (h) requires that the
                                           and interpreted in proposed regulations                 provision of investment advice by the                 fiduciary adviser provide appropriate
                                           being published in today’s Federal                      fiduciary adviser, including, with                    disclosure, in connection with the sale,
                                           Register, the fee-leveling requirement                  respect to an arrangement that utilizes a             acquisition, or holding of the security or
                                           under paragraph (f) applies only to the                 computer model pursuant to paragraph
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                                                                                                                                                         other property, in accordance with all
                                           individual who provides investment                      (e)(1), any limitations on the ability of             applicable securities laws.
                                           advice. In this regard, the Department is               the computer model to take into account
                                           persuaded that the safeguards provided                  an investment option that constitutes an                9 For a description of computer model limitations,
                                           for in the class exemption are sufficient               investment primarily in qualifying                    see proposed regulations published in today’s
                                           to permit the application of the fee-                   employer securities, as provided for in               Federal Register.



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                                           49928                         Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Notices

                                           Policies and Procedures—Paragraph (i)                   of the report to the IRA beneficiary or                solely at the direction of the recipient of
                                              Paragraph (j) of Section III requires                make such report available on its Web                  the investment advice. Paragraph (l)
                                           that the fiduciary adviser adopt and                    site, provided, however, that with                     requires that the compensation received
                                           follow written policies and procedures                  respect to availability on a Web site,                 by the fiduciary adviser and affiliates
                                           that are designed to assure compliance                  such IRA beneficiaries must be provided                thereof in connection with the sale,
                                           with the conditions of the exemption.                   information, with the information                      acquisition or holding of the security or
                                           The Department believes that the                        required to be furnished pursuant to                   other property must be reasonable.
                                           maintenance of such policies and                        section III(g)(1), concerning the purpose              Paragraph (m) requires that the terms of
                                                                                                   of the report, and how and where to                    the sale, acquisition or holding of the
                                           procedures will help ensure compliance
                                                                                                   locate the report applicable to their                  security or other property must be at
                                           with the exemption, as well as support
                                                                                                   account. With respect to making the                    least as favorable to the plan or IRA as
                                           a finding that, for purposes of section
                                                                                                   report available on a Web site, the                    an arm’s length transaction with an
                                           408(a)(1), the exemption is
                                                                                                   Department believes that this alternative              unrelated party would be.
                                           administratively feasible. In this regard,
                                                                                                   to furnishing reports to IRA
                                           the Department notes that, as discussed                                                                        Record Retention—Paragraph (n)
                                                                                                   beneficiaries satisfies the requirement of
                                           below, the auditor engaged pursuant to                                                                           Paragraph (n) of Section III provides
                                                                                                   section 104(d)(1) of the Electronic
                                           paragraph (j) is required to review a                                                                          that the fiduciary adviser must
                                                                                                   Signatures in Global and National
                                           fiduciary adviser’s compliance with its                                                                        maintain, in a manner accessible for
                                                                                                   Commerce Act (E–SIGN) 10 that any
                                           policies and procedures.                                                                                       audit or examination, for a period not
                                                                                                   exemption from the consumer consent
                                           Annual Audit—Paragraph (j)                              requirements of section 101(c) of E–                   less than six years after the provision of
                                                                                                   SIGN must be necessary to eliminate a                  investment advice any records
                                              The annual audit requirements of this                                                                       necessary to determine, explain or
                                           proposed class exemption generally                      substantial burden on electronic
                                                                                                   commerce and will not increase the                     verify compliance with the conditions
                                           track the audit requirements applicable                                                                        of the class exemption.
                                                                                                   material risk of harm to consumers. The
                                           to investment advice arrangements
                                                                                                   Department solicits comments on this                   4. Definitions—Section IV
                                           offered under the statutory exemption
                                                                                                   finding. Further, in the event that the
                                           and regulations issued thereunder,                                                                                Section IV defines certain terms that
                                                                                                   report of the auditor identifies
                                           appearing elsewhere in today’s Federal                                                                         apply for purposes of the class
                                                                                                   noncompliance with the policies and
                                           Register. See proposed 29 CFR                                                                                  exemption. In general, the definitions
                                                                                                   procedures required by section III(i) or
                                           2550.408g–1(f).                                                                                                applied for purposes of the class
                                                                                                   the conditions of the class exemption,
                                              Paragraph (j)(1)(i) of Section III of the                                                                   exemption comport with the definitions
                                                                                                   the fiduciary adviser, within 30 days
                                           proposed class exemption requires that,                                                                        applied to terms under the statutory
                                                                                                   following receipt of the report from the
                                           at least annually, the fiduciary adviser                                                                       exemption and the proposed
                                                                                                   auditor, must send a copy of the report
                                           engage an independent auditor to                                                                               regulations, appearing elsewhere in
                                                                                                   to the Department at the address
                                           conduct an audit, and prepare a report                  provided in the class exemption.                       today’s Federal Register. See proposed
                                           with respect thereto and setting forth its                 Paragraph (j)(3) provides that, in                  29 CFR 2550.408g–1(j).
                                           specific findings, to determine                         conducting the audit required in (j)(1),                  As a threshold matter, this proposed
                                           compliance with the policies and                        the auditor must review sufficient                     class exemption would be available only
                                           procedures required under paragraph (i)                 relevant information to formulate an                   in connection with investment advice
                                           of Section III and the requirements of                  opinion as to whether the investment                   provided by a fiduciary adviser.
                                           the class exemption. The auditor, within                advice arrangements, and the advice                    Paragraph (a) defines the term
                                           60 days following the completion of the                 provided pursuant thereto, offered by                  ‘‘fiduciary adviser.’’ This definition
                                           audit, must furnish its report to the                   the fiduciary adviser during the audit                 tracks the statutory definition of that
                                           fiduciary adviser and, except with                      period were in compliance with the                     term.
                                           respect to an arrangement with an IRA,                  policies and procedures required under                    Paragraph (b) defines the term
                                           to the fiduciary that authorized the                    paragraph (i) of Section III and the                   ‘‘registered representative’’ of another
                                           investment advice arrangement, as                       requirements of the class exemption.                   entity to mean a person described in
                                           required under paragraph (a) of Section                 Paragraph (j)(3) also makes clear,                     section 3(a)(18) of the Securities
                                           III. The audit must be conducted by an                  however, that it does not preclude an                  Exchange Act of 1934 (substituting the
                                           auditor who has appropriate technical                   auditor from using information obtained                entity for the broker or dealer referred
                                           training or experience and proficiency                  by sampling, as reasonably determined                  to in such section) or a person described
                                           and so represents in writing to the                     appropriate by the auditor, investment                 in section 202(a)(17) of the Investment
                                           fiduciary adviser. Paragraph (j)(2)                     advice arrangements, and the advice                    Advisers Act of 1940 (substituting the
                                           provides that for purposes of paragraph                 pursuant thereto, during the audit                     entity for the investment adviser
                                           (j)(1), an auditor is considered                        period.                                                referred to in such section). Paragraph
                                           independent if it does not have a                                                                              (c) defines the term ‘‘individual
                                           material affiliation or material                        Miscellaneous Conditions—Paragraphs                    retirement account’’ and paragraph (d)
                                           contractual relationship with the person                (k)–(m)                                                defines the term ‘‘affiliate’’ for purposes
                                           offering the investment advice                            Paragraphs (k)–(m) track provisions of               of the class exemption.
                                           arrangement to the plan or IRA or any                   the statutory exemption and proposed                      As with the proposed regulations, the
                                           person providing designated investment                  regulations, appearing elsewhere in                    proposed class exemption, at paragraphs
                                           options under the plan or IRA.                          today’s Federal Register. See proposed                 (e) and (f), respectively, also defines the
                                              Paragraph (j)(1)(ii) contains additional             29 CFR 2550.408g–1(h). Paragraph (k) of                terms ‘‘material affiliation’’ and
                                           requirements that apply with respect to                 Section III requires that the sale,                    ‘‘material contractual relationship.’’
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                                           an arrangement with an IRA. Under this                  acquisition or holding of a security or                Paragraph (e)(1) defines a person with a
                                           provision, the fiduciary adviser, within                other property on behalf of a plan or                  ‘‘material affiliation’’ with another
                                           30 days following receipt of the report                 IRA under the exemption must occur                     person as: any affiliate of the other
                                           from the auditor, as described in                                                                              person; any person directly or indirectly
                                           paragraph (j)(1)(i), must furnish a copy                  10 15   U.S.C. 7004(d)(1) (2000).                    owning, controlling, or holding, 5


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                                                                         Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Notices                                            49929

                                           percent or more of the interests of such                to which the conditions of the                        Persons interested in submitting paper
                                           other person; and any person 5 percent                  exemption have not been satisfied. In                 copies should refer to the information
                                           or more of whose interests are directly                 addition, in the case of a pattern or                 set forth above under ADDRESSES for the
                                           or indirectly owned, controlled, or held,               practice of noncompliance with any of                 specific information relating to the
                                           by such other person. The Department                    the conditions, the exemption will not                delivery comments. All comments will
                                           notes that the definition of material                   apply to any transaction in connection                be available to the public, without
                                           affiliation includes an affiliate, as                   with the provision of investment advice               charge, online at http://www.dol.gov/
                                           defined in paragraph (d) of section IV,                 provided by the fiduciary adviser during              ebsa and at the Public Disclosure Room,
                                           and that, whereas the definition of                     the period over which the pattern or                  N–1513, Employee Benefits Security
                                           affiliate focuses on voting securities                  practice extended.                                    Administration, U.S. Department of
                                           owned, controlled or held, the                                                                                Labor, 200 Constitution Avenue, NW.,
                                           definition of material affiliate focuses                C. Effective Date
                                                                                                                                                         Washington, DC 20210.
                                           not only on the voting interests, but also                 The Department is proposing an
                                           on any interest. In this regard, paragraph              effective date for the proposed class                 F. Executive Order 12866; Paperwork
                                           (e)(2) defines the term ‘‘interest’’ for                exemption which is 90 days after the                  Reduction Act
                                           purposes of paragraph (e)(1).                           publication of the final exemption in the               The Department’s full Regulatory
                                              Paragraph (f) provides that persons                  Federal Register.                                     Impact Analysis for the class exemption
                                           have a ‘‘material contractual                                                                                 proposed herein and rules proposed
                                                                                                   D. General Information
                                           relationship’’ if payments made by one                                                                        under the statutory exemption for
                                           person to the other person pursuant to                     The attention of interested persons is
                                                                                                                                                         investment advice can be found in the
                                           written contracts or agreements between                 directed to the following:
                                                                                                      (1) The fact that a transaction is the             preamble to those proposed rules
                                           the persons exceed 10 percent of the                                                                          appearing elsewhere in today’s Federal
                                           gross revenue, on an annual basis, of                   subject of an exemption under section
                                                                                                   408(a) of the Act and section 4975(c)(2)              Register .
                                           such other person. The Department
                                           believes that one person’s receipt of                   of the Code does not relieve a fiduciary              G. Proposed Exemption
                                           more than 10 percent of gross revenue                   or other party in interest or disqualified
                                           from another person is sufficiently                     person from other provisions of the Act                 The Department has under
                                           significant to be considered material.                  and the Code, including any prohibited                consideration the grant of the following
                                           However, the Department specifically                    transaction provisions to which the                   class exemption under the authority of
                                           invites comments on whether the                         exemption does not apply and the                      section 408(a) of ERISA and section
                                           percentage test should be higher or                     general fiduciary responsibility                      4975(c)(2) of the Code, and in
                                           lower and, if so, why.                                  provisions of section 404 of the Act.                 accordance with the procedures set
                                              Paragraph (g) defines ‘‘control’’ to                 Section 404 requires, among other                     forth in 29 CFR Part 2570, Subpart B (55
                                           mean the power to exercise a controlling                things, that a fiduciary discharge its                FR 32836, 32847, August 10, 1990).
                                           influence over the management or                        duties with respect to the plan                       Section I—Proposed Exemption for the
                                           policies of a person other than an                      prudently and solely in the interests of              Provision of Investment Advice to
                                           individual.                                             the plan’s participants and beneficiaries.            Participants and Beneficiaries of
                                              Paragraph (h) of Section IV defines,                 A transaction’s qualification for an                  Individual Account Plans
                                           for purposes of paragraph (e)(1) of                     exemption also does not affect the
                                           Section III, the term ‘‘independent’’ to                requirement of section 401(a) of the                     The restrictions of sections 406(a) and
                                           mean a person that is not an affiliate of               Code that the plan must operate for the               406(b) of ERISA and the sanctions
                                           the other person and does not have a                    exclusive benefit of the employees of                 resulting from the application of section
                                           material affiliation or material                        the employer maintaining the plan and                 4975 of the Code, by reason of section
                                           contractual relationship with the other                 their beneficiaries;                                  4975(c)(1)(A) through (F) of the Code,
                                           person.                                                    (2) If granted, the proposed exemption             shall not apply to:
                                              For purposes of paragraphs (a), (g)(1)               will apply to a transaction only if the                  (a) The provision of investment
                                           and (j)(2) of Section III of the proposal,              conditions specified in the exemption                 advice described in section 3(21)(A)(ii)
                                           paragraph (i) of Section IV defines the                 are met; and                                          of the Act by a fiduciary adviser to a
                                           term ‘‘designated investment option’’ to                   (3) The proposed exemption, if                     participant or beneficiary of an
                                           mean any investment option designated                   granted, will be supplemental to, and                 individual account plan that permits
                                           by the plan into which participants and                 not in derogation of, any other                       such participant or beneficiary to direct
                                           beneficiaries may direct the investment                 provisions of the Act and the Code,                   the investment of their individual
                                           of assets held in, or contributed to, their             including statutory or administrative                 accounts;
                                           individual accounts. However, the term                  exemptions and transitional rules.
                                                                                                                                                            (b) the acquisition, holding, or sale of
                                           ‘‘designated investment option’’ does
                                                                                                   E. Written Comments                                   a security or other property pursuant to
                                           not include ‘‘brokerage windows,’’ ‘‘self-
                                                                                                     Interested persons are encouraged to                the investment advice; and
                                           directed brokerage accounts,’’ or similar
                                           plan arrangements that enable                           submit written comments on the                           (c) except as otherwise provided in
                                           participants and beneficiaries to select                proposed exemption. Comments are due                  this exemption, the direct or indirect
                                           investments beyond those designated by                  not later than 45 days after the date of              receipt of fees or other compensation by
                                           the plan.                                               publication of the proposal in the                    the fiduciary adviser (or any employee,
                                                                                                   Federal Register. The Employee                        agent, registered representative or
                                           5. Effect of Noncompliance—Section V                    Benefits Security Administration                      affiliate thereof) in connection with the
                                              Section V clarifies that the class                   encourages interested persons to submit               provision of the advice or in connection
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                                           exemption will not apply to any                         their comments electronically by e-mail               with an acquisition, holding, or sale of
                                           transaction (described in section I or II)              to e-ORI@dol.gov (Subject: Investment                 a security or other property pursuant to
                                           in connection with the provision of                     Advice Class Exemption). Persons                      the investment advice, provided that the
                                           investment advice to an individual                      submitting comments electronically are                conditions set forth in section III below
                                           participant or beneficiary with respect                 encouraged not to submit paper copies.                are met.


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                                           49930                         Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Notices

                                           Section II—Proposed Exemption for the                      (d) The fiduciary adviser provides                 material affiliation or material
                                           Provision of Investment Advice to                       advice in accordance with paragraph (e)               contractual relationship with the
                                           Beneficiaries of Individual Retirement                  or (f), or both.                                      foregoing, greater income than other
                                           Accounts                                                   (e)(1) Except as provided in                       options of the same asset class, unless
                                              The sanctions resulting from the                     subparagraph (2), before providing other              the adviser prudently concludes that the
                                           application of section 4975 of the Code,                investment advice covered by this                     recommendation is in the best interest
                                           by reason of section 4975(c)(1)(A)                      exemption, participants and                           of the participant or beneficiary and
                                           through (F) of the Code, shall not apply                beneficiaries shall be furnished with                 explains the basis for that conclusion to
                                           to:                                                     investment recommendations generated                  the participant or beneficiary. This
                                              (a) The provision of investment                      by a computer model that—(A) meets                    subparagraph (3) shall not apply to
                                           advice described in section                             the requirements of ERISA section                     investment advice generated solely by
                                           4975(e)(3)(B) of the Code by a fiduciary                408(g)(3)(B) and (C); or (B) meets the                use of a computer model described in
                                           adviser to a beneficiary of an Individual               requirements of section 408(g)(3)(B) and              clause (A) or (B) of subparagraph (1);
                                           Retirement Account (IRA) that permits                   was designed and is maintained by a                      (4) Not later than 30 days following
                                           such beneficiary to direct the                          person independent of the fiduciary                   the provision of investment advice
                                           investment of the assets of his or her                  adviser (and any of the adviser’s                     under this paragraph (e), the employee,
                                           IRA;                                                    affiliates) and utilizes methodologies                agent or registered representative
                                              (b) the acquisition, holding, or sale of             and parameters determined appropriate                 providing the advice on behalf of the
                                           a security or other property pursuant to                solely by the independent person,                     fiduciary adviser shall document the
                                           the investment advice; and                              without influence from the fiduciary                  basis of any investment option(s)
                                              (c) except as otherwise provided in                  adviser (or any of the adviser’s                      recommended to a participant or
                                           this exemption, the direct or indirect                  affiliates);                                          beneficiary, including an explanation as
                                           receipt of fees or other compensation by                   (2) In the case of an IRA with respect             to how such recommendation relates to
                                           the fiduciary adviser (or any employee,                 to which the types or number of                       the recommendations or information
                                           agent, registered representative or                     investment choices reasonably                         provided or generated pursuant to
                                           affiliate thereof) in connection with the               precludes the use of a computer model                 subparagraph (1) or (2) of this paragraph
                                           provision of the advice or in connection                meeting the requirements of section                   (e); and, with respect to any investment
                                           with an acquisition, holding, or sale of                408(g)(3)(B) of ERISA to generate                     advice (other than generated solely by a
                                           a security or other property pursuant to                investment recommendations, before                    computer model described in clause (A)
                                           the investment advice, provided that the                providing other investment advice                     or (B) of subparagraph (1)) that
                                           conditions set forth in section III below               covered by this exemption, beneficiaries              recommends investment options that
                                           are met.                                                shall be furnished with material, such as             may generate for the fiduciary adviser or
                                                                                                   graphs, pie charts, case studies,                     any employee, agent or registered
                                           Section III. Conditions                                 worksheets, or interactive software or                representative, or any affiliate thereof,
                                              (a) The arrangement pursuant to                      similar programs, that reflect or produce             or any person with a material affiliation
                                           which investment advice is provided to                  asset allocation models taking into                   or material contractual relationship with
                                           participants and beneficiaries is                       account the age (or time horizon) and                 the foregoing, greater income than other
                                           expressly authorized in advance by a                    risk profile of the beneficiary, to the               options of the same asset class, the basis
                                           plan fiduciary (or, in the case of an IRA,              extent known. Nothing shall preclude                  for concluding that the recommendation
                                           the IRA beneficiary) other than: The                    the furnishing of material, in addition to            is in the best interest of the participant
                                           person offering the investment advice                   the foregoing, reflecting asset allocation            or beneficiary;
                                           arrangement; any person providing                       portfolios of hypothetical individuals                   (5) Any documentation required by
                                           designated investment options under                     with different time horizons and risk                 subparagraph (4) of this paragraph (e)
                                           the plan; or any affiliate of either.                   profiles. For purposes of any materials               shall be retained in accordance with
                                           Provided, however, that for purposes of                 provided pursuant to this subparagraph                paragraph (n) of this section.
                                           the preceding, in the case of an IRA, an                (2): (A) models must be based on                         (f) Any fees or other compensation
                                           IRA beneficiary will not be treated as an               generally accepted investment theories                (including salary, bonuses, awards,
                                           affiliate of a person solely by reason of               that take into account the historic                   promotions, commissions or any other
                                           being an employee of such person.                       returns of different asset classes (e.g.,             thing of value) received, directly or
                                              (b) The investment advice is based on                equities, bonds, or cash) over defined                indirectly, by an employee, agent or
                                           generally accepted investment theories                  periods of time; (B) such models must                 registered representative providing
                                           that take into account the historic                     operate in a manner that is not biased                advice on behalf of the fiduciary adviser
                                           returns of different asset classes over                 in favor of investments offered by the                pursuant to this exemption (as
                                           defined periods of time; provided,                      fiduciary adviser or a person with a                  distinguished from any compensation
                                           however, that nothing herein shall                      material affiliation or material                      received by the fiduciary adviser on
                                           preclude any investment advice from                     contractual relationship with the                     whose behalf the employee, agent or
                                           being based on generally accepted                       fiduciary adviser; and (C) all material               registered representative is providing
                                           investment theories that take into                      facts and assumptions on which such                   such advice) do not vary depending on
                                           account additional considerations.                      models are based (e.g., retirement ages,              the basis of any investment option
                                              (c) The investment advice takes into                 life expectancies, income levels,                     selected by a participant or beneficiary.
                                           account information furnished by a                      financial resources, replacement income                  (g)(1) The fiduciary adviser provides,
                                           participant or beneficiary relating to age,             ratios, inflation rates, and rates of                 without charge, to the participant or
                                           life expectancy, retirement age, risk                   return) accompany the models;                         beneficiary before the initial provision
                                           tolerance, other assets or sources of                      (3) The investment advice provided                 of investment advice under this
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                                           income and investment preferences,                      does not recommend investment                         exemption, and at least once each year
                                           although nothing herein shall preclude                  options that may generate for the                     thereafter during which the fiduciary
                                           any investment advice from taking into                  fiduciary adviser or any employee, agent              adviser provides investment advice to
                                           account additional information that a                   or registered representative, or any                  the participant or beneficiary, written
                                           participant or beneficiary may provide.                 affiliate thereof, or any person with a               notification: (i) Of the role of any party


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                                                                         Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Notices                                           49931

                                           that has a material affiliation or material             an appropriately completed model                      receipt of the report from the auditor,
                                           contractual relationship with the                       disclosure form will be deemed to                     sends a copy of the report to the
                                           fiduciary adviser in the development of                 satisfy the requirements of paragraphs                Department of Labor at the following
                                           the computer model described in                         (g)(1) and (2)(i) with respect to such                address: Investment Advice Class
                                           paragraph (e)(1) of this section or, if                 information.                                          Exemption Notification, U.S.
                                           applicable, the materials described in                     (3) Such notification may, in                      Department of Labor, Employee Benefits
                                           paragraph (e)(2) of this section, and, to               accordance with 29 CFR 2520.104b–1,                   Security Administration, Room N–1513,
                                           the extent applicable, in the selection of              be provided in written or electronic                  200 Constitution Ave., NW.,
                                           investment options available under the                  form.                                                 Washington, DC 20210;
                                           plan, (ii) of the past performance and                     (4) At all times during the provision                 (2) for purposes of subparagraph (1),
                                           historical rates of return of the                       of advisory services to the participant or            an auditor is considered independent if
                                           designated investment options available                 beneficiary pursuant to this exemption,               it does not have a material affiliation or
                                           under the plan or IRA to the extent such                the fiduciary adviser provides, without               material contractual relationship with
                                           information is not otherwise provided,                  charge, accurate information to the                   the person offering the investment
                                           (iii) of all fees or other compensation                 recipient of the advice concerning any                advice arrangement to the plan or IRA
                                           relating to the advice that the fiduciary               material change to the information                    or any designated investment options
                                           adviser or any affiliate thereof is to                  required to be provided to the recipient              under the plan or IRA;
                                           receive (including compensation                         of the advice at a time reasonably                       (3) for purposes of the audit described
                                           provided by any third party) in                         contemporaneous to the change in                      in subparagraph (1), the auditor shall
                                           connection with the provision of the                    information.                                          review sufficient relevant information to
                                           advice or in connection with the sale,                     (h) The fiduciary adviser provides
                                                                                                                                                         formulate an opinion as to whether the
                                           acquisition, or holding of the security or              appropriate disclosure, in connection
                                                                                                                                                         investment advice arrangements, and
                                           other property, (iv) of any material                    with the sale, acquisition, or holding of
                                                                                                                                                         the advice provided pursuant thereto,
                                           affiliation or material contractual                     the security or other property, in
                                                                                                                                                         offered by the fiduciary adviser during
                                                                                                   accordance with all applicable
                                           relationship of the fiduciary adviser or                                                                      the audit period were in compliance
                                                                                                   securities laws.
                                           affiliates thereof in the security or other                                                                   with the policies and procedures of
                                                                                                      (i) The fiduciary adviser adopts and
                                           property, (v) of the manner, and under                  follows written policies and procedures               paragraph (i) of this section and the
                                           what circumstances, any participant or                  that are designed to assure compliance                requirements of this exemption;
                                           beneficiary information provided under                  with the conditions of this exemption.                provided, however, that nothing in this
                                           the arrangement will be used or                            (j)(1) The fiduciary adviser—                      subparagraph shall preclude an auditor
                                           disclosed, (vi) of the types of services                   (i) at least annually, engages an                  from using information obtained by
                                           provided by the fiduciary adviser in                    independent auditor, who has                          sampling, as reasonably determined
                                           connection with the provision of                        appropriate technical training or                     appropriate by the auditor, investment
                                           investment advice by the fiduciary                      experience and proficiency and so                     advice arrangements, and the advice
                                           adviser, including, with respect to an                  represents in writing to the fiduciary                pursuant thereto, during the audit
                                           arrangement that utilizes a computer                    adviser, to (A) conduct an audit, and                 period.
                                           model pursuant to paragraph (e)(1), any                 prepare a report with respect thereto                    (k) The sale, acquisition or holding of
                                           limitations on the ability of the                       and setting forth its specific findings, to           a security or other property on behalf of
                                           computer model to take into account an                  determine compliance with the policies                a plan or IRA occurs solely at the
                                           investment option that constitutes an                   and procedures of paragraph (i) of this               direction of the recipient of the
                                           investment primarily in qualifying                      section and the requirements of this                  investment advice.
                                           employer securities, as provided for at                 exemption, and (B) within 60 days                        (l) The compensation received by the
                                           29 CFR 2550.408g–1(d)(1)(v), (vii) that                 following the completion of the audit,                fiduciary adviser and affiliates thereof
                                           the fiduciary adviser is acting as a                    furnish its report to the fiduciary                   in connection with the sale, acquisition
                                           fiduciary of the plan in connection with                adviser, and, except with respect to an               or holding of the security or other
                                           the provision of the investment advice,                 arrangement with an IRA, to the                       property is reasonable.
                                           and (viii) that a recipient of the advice               fiduciary who authorized the                             (m) The terms of the sale, acquisition
                                           may separately arrange for the provision                arrangement pursuant to which                         or holding of the security or other
                                           of advice by another adviser, that could                investment advice under this exemption                property are at least as favorable to the
                                           have no material affiliation with, and                  is provided; and                                      plan or IRA as an arm’s length
                                           receives no fees or other compensation                     (ii) with respect to an arrangement                transaction would be.
                                           in connection with, the security or other               with an IRA—(A) within 30 days                           (n) The fiduciary adviser maintains,
                                           property;                                               following receipt of the report from the              in a manner accessible for audit or
                                              (2)(i) Such notification must be                     auditor, furnishes a copy of the report               examination, for a period not less than
                                           written in a clear and conspicuous                      to the IRA beneficiary or makes such                  six years after the provision of
                                           manner and in a manner calculated to                    report available on its Web site,                     investment advice under this
                                           be understood by the average plan                       provided that such beneficiaries are                  exemption, any records necessary to
                                           participant and shall be sufficiently                   provided information, with the                        determine, explain or verify compliance
                                           accurate and comprehensive to                           information required to be disclosed                  with the conditions of this exemption.
                                           reasonably apprise such participants                    pursuant to paragraph (g)(1) of this
                                           and beneficiaries of the information                    section, concerning the purpose of the                Section IV. Definitions
                                           required to be disclosed; (ii) the                      report, and how and where to locate the                  (a) Fiduciary Adviser—means, with
                                           appendix to 29 CFR 2550.408g–1                          report applicable to their account, and               respect to a plan, a person who is a
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                                           contains a model disclosure form that                   (B) in the event that the report of the               fiduciary of the plan by reason of the
                                           may be used to provide the notification                 auditor identifies noncompliance with                 provision of investment advice
                                           of information described in paragraph                   the policies and procedures required by               described in section 3(21)(A)(ii) of the
                                           (g)(1)(iii). Use of the model disclosure                paragraph (i) or the conditions of this               Act by the person to the participant or
                                           form is not mandatory. However, use of                  exemption, within 30 days following                   beneficiary of the plan and who is—


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                                           49932                         Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Notices

                                              (1) Registered as an investment                      (6) a trust, plan, account, or annuity                pursuant to written contracts or
                                           adviser under the Investment Advisers                   which, at any time, has been determined               agreements between the persons exceed
                                           Act of 1940 (15 U.S.C. 80b–1 et seq. )                  by the Secretary of the Treasury to be                10 percent of the gross revenue, on an
                                           or under the laws of the State in which                 described in any preceding                            annual basis, of such other person.
                                           the fiduciary maintains its principal                   subparagraph of this paragraph [i.e., (1)                (g) Control—means the power to
                                           office and place of business,                           through (5) above].                                   exercise a controlling influence over the
                                              (2) A bank or similar financial                         (d) Affiliate—unless specifically                  management or policies of a person
                                           institution referred to in section                      provided otherwise, an affiliate of                   other than an individual.
                                           408(b)(4) of the Act or a savings                       another person means—                                    (h) Independent—for purposes of
                                           association (as defined in section 3(b)(1)                 (1) Any person directly or indirectly              section III(e)(1), a person is
                                           of the Federal Deposit Insurance Act (12                owning, controlling, or holding with                  ‘‘independent’’ of another person if it is
                                           U.S.C. 1813(b)(1)), but only if the advice              power to vote, 5 percent or more of the               not an affiliate of the other person, and
                                           is provided through a trust department                  outstanding voting securities of such                 does not have a material affiliation or
                                           of the bank or similar financial                        other person;                                         material contractual relationship with
                                           institution which is subject to periodic                   (2) Any person 5 percent or more of                the other person.
                                           examination and review by Federal or                    whose outstanding voting securities are                  (i) Designated Investment Option—
                                           State banking authorities, or                           directly or indirectly owned, controlled,             means any investment option
                                              (3) An insurance company qualified                   or held with power to vote, by such                   designated by the plan into which
                                           to do business under the laws of a State,               other person;                                         participants and beneficiaries may
                                           or                                                         (3) Any person directly or indirectly              direct the investment of assets held in,
                                              (4) A person registered as a broker or               controlling, controlled by, or under                  or contributed to, their individual
                                           dealer under the Securities Exchange                    common control with, such other                       accounts. The term ‘‘designated
                                           Act of 1934 (15 U.S.C. 78a et seq.), or                 person; and                                           investment option’’ shall not include
                                              (5) An affiliate of a person described                  (4) Any officer, director, partner,                ‘‘brokerage windows,’’ ‘‘self-directed
                                           in any of clauses (1) through (4) above,                copartner, or employee of such other                  brokerage accounts,’’ or similar plan
                                           or                                                      person.                                               arrangements that enable participants
                                              (6) An employee, agent, or registered                   (e) Material Affiliation—(1) a person
                                                                                                                                                         and beneficiaries to select investments
                                           representative of a person described in                 with a ‘‘material affiliation’’ with
                                                                                                                                                         beyond those designated by the plan.
                                           clauses (1) through (5) above who                       another person means—
                                           satisfies the requirements of applicable                   (A) any affiliate of the other person;             Section V. Noncompliance With Terms
                                           insurance, banking, and securities laws                    (B) Any person directly or indirectly              of the Exemption
                                           relating to the provision of the advice.                owning, controlling, or holding, 5
                                              (b) Registered Representative—a                                                                               This exemption shall not apply to any
                                                                                                   percent or more of the interests of such
                                           registered representative of another                                                                          transaction (described in Section I or II
                                                                                                   other person;
                                           entity means a person described in                                                                            of this exemption) in connection with
                                                                                                      (C) Any person 5 percent or more of
                                           section 3(a)(18) of the Securities                                                                            the provision of investment advice to an
                                                                                                   whose interests are directly or indirectly
                                           Exchange Act of 1934 (15 U.S.C.                                                                               individual participant or beneficiary
                                                                                                   owned, controlled, or held, by such
                                           78c(a)(18)) (substituting the entity for                                                                      with respect to which the conditions of
                                                                                                   other person.
                                           the broker or dealer referred to in such                   (2) For purposes of subparagraph                   this exemption have not been satisfied.
                                           section) or a person described in section               (e)(1) of this section, the term ‘‘interest’’         In addition, in the case of a pattern or
                                           202(a)(17) of the Investment Advisers                   means with respect to an entity—                      practice of noncompliance with any of
                                           Act of 1940 (15 U.S.C. 80b–2(a)(17))                       (A) The combined voting power of all               the conditions of this exemption, the
                                           (substituting the entity for the                        classes of stock entitled to vote or the              exemption shall not apply to any
                                           investment adviser referred to in such                  total value of the shares of all classes of           transaction in connection with the
                                           section).                                               stock of the entity if the entity is a                provision of investment advice provided
                                              (c) Individual Retirement Account or                 corporation;                                          by the fiduciary adviser during the
                                           IRA means—(1) an individual                                (B) The capital interest or the profits            period over which the pattern or
                                           retirement account described in section                 interest of the entity if the entity is a             practice extended.
                                           408(a) of the Code; (2) an individual                   partnership; or                                         Signed at Washington, DC, this 15th day of
                                           retirement annuity described in section                    (C) The beneficial interest of the                 August, 2008.
                                           408(b) of the Code; (3) an Archer MSA                   entity if the entity is a trust or                    Bradford P. Campbell,
                                           described in section 220(d) of the Code;                unincorporated enterprise.                            Assistant Secretary, Employee Benefits
                                           (4) a health savings account described in                  (f) Material Contractual                           Security Administration, Department of
                                           section 223(d) of the Code; (5) a                       Relationship—persons have a ‘‘material                Labor.
                                           Coverdell education savings account                     contractual relationship’’ if payments                [FR Doc. E8–19273 Filed 8–21–08; 8:45 am]
                                           described in section 530 of the Code; or                made by one person to the other person                BILLING CODE 4510–29–P
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