Procedures Governing the Filing and Processing of Prohibited Transaction Exemption Applications
| Published date | 15 March 2022 |
| Citation | 87 FR 14722 |
| Record Number | 2022-04963 |
| Section | Proposed rules |
| Court | Employee Benefits Security Administration |
Federal Register, Volume 87 Issue 50 (Tuesday, March 15, 2022)
[Federal Register Volume 87, Number 50 (Tuesday, March 15, 2022)]
[Proposed Rules]
[Pages 14722-14751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-04963]
[[Page 14721]]
Vol. 87
Tuesday,
No. 50
March 15, 2022
Part IVDepartment of Labor-----------------------------------------------------------------------Employee Benefits Security Administration-----------------------------------------------------------------------29 CFR Part 2570Procedures Governing the Filing and Processing of Prohibited
Transaction Exemption Applications; Proposed Rule
Federal Register / Vol. 87 , No. 50 / Tuesday, March 15, 2022 /
Proposed Rules
[[Page 14722]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2570
RIN 1210-ACO5
Procedures Governing the Filing and Processing of Prohibited
Transaction Exemption Applications
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document gives notice of a proposed rule that, if
adopted, would supersede the Department of Labor's (the Department)
existing procedure governing the filing and processing of applications
for administrative exemptions from the prohibited transaction
provisions of the Employee Retirement Income Security Act of 1974
(ERISA), the Internal Revenue Code of 1986 (the Code), and the Federal
Employees' Retirement System Act of 1986 (FERSA). The Secretary of
Labor (the Secretary) is authorized to grant exemptions from the
prohibited transaction provisions of ERISA, the Code, and FERSA and to
establish an exemption procedure to provide for such relief. The
proposed rule would update the Department's prohibited transaction
exemption procedures.
DATES: Written comments and requests for a public hearing on the
proposed rule must be submitted to the Department within April 14,
2022.
ADDRESSES: All written comments and requests for a hearing concerning
the proposed rule should be sent to the Office of Exemption
Determinations through the Federal eRulemaking Portal and identified by
RIN 1210-ACO5.
Federal eRulemaking Portal: www.regulations.gov at Docket ID
number: EBSA-2022-0003. Follow the instructions for submitting
comments.
See SUPPLEMENTARY INFORMATION below for additional information
regarding comments.
FOR FURTHER INFORMATION CONTACT: Brian Shiker, telephone: (202) 693-
8552, email: [email protected], Office of Exemption Determinations,
Employee Benefits Security Administration, U.S. Department of Labor
(this is not a toll-free number).
Customer Service Information: Individuals interested in obtaining
information from the Department concerning ERISA and employee benefit
plans may call the Employee Benefits Security Administration's Toll-
Free Hotline, at 1-866-444-EBSA (3272) or visit the Department's
website (www.dol.gov/ebsa).
SUPPLEMENTARY INFORMATION:
Comment Instructions
All comments and requests for a hearing must be received by the end
of the comment period. Requests for a hearing must state the issues to
be addressed and include a general description of the evidence to be
presented at the hearing. In light of the current circumstances
surrounding the COVID-19 pandemic caused by the novel coronavirus which
may result in disruption to the receipt of comments by U.S. Mail or
hand delivery/courier, persons are encouraged to submit all comments
electronically and not to follow with paper copies. The comments and
hearing requests will be available for public inspection in the Public
Disclosure Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue NW,
Washington, DC 20210; however, the Public Disclosure Room may be closed
for all or a portion of the comment period due to circumstances
surrounding the COVID-19 pandemic caused by the novel coronavirus.
Comments and hearing requests will also be available online at
www.regulations.gov, at Docket ID number: EBSA-2022-0003 and
www.dol.gov/ebsa, at no charge.
Warning: All comments received will be included in the public
record without change and will be made available online at
www.regulations.gov, including any personal information provided,
unless the comment includes information claimed to be confidential or
other information whose disclosure is restricted by statute. If you
submit a comment, the Employee Benefits Security Administration (EBSA)
recommends that you include your name and other contact information,
but DO NOT submit information that you consider to be confidential, or
otherwise protected (such as Social Security number or an unlisted
phone number), or confidential business information that you do not
want publicly disclosed. However, if EBSA cannot read your comment due
to technical difficulties and cannot contact you for clarification,
EBSA might not be able to consider your comment. Additionally, the
www.regulations.gov website is an ``anonymous access'' system, which
means EBSA will not know your identity or contact information unless
you provide it. If you send an email directly to EBSA without going
through www.regulations.gov, your email address will be automatically
captured and included as part of the comment that is placed in the
public record and made available on the internet.
Background
Part 4 of Title I of ERISA establishes an extensive framework of
standards and rules that govern the conduct of ERISA plan fiduciaries;
collectively, these rules are designed to safeguard the integrity of
employee benefit plans. As part of this structure, ERISA section 406(a)
generally prohibits a plan fiduciary from causing the plan to engage in
a variety of transactions with certain related parties, unless a
statutory or administrative exemption applies to the transaction. These
related parties (which include plan fiduciaries, sponsoring employers,
unions, service providers, and other persons who may be in a position
to exercise improper influence over a plan) are defined as ``parties in
interest'' in ERISA section 3(14). ERISA section 406(b) generally
prohibits a plan fiduciary from (1) dealing with the assets of a plan
in his or her own interest or for his or her account, (2) acting in any
transaction involving the plan on behalf of a party whose interests are
adverse to those of the plan or its participants and beneficiaries, or
(3) receiving any consideration for his or her own personal account
from a party dealing with the plan in connection with a transaction
involving plan assets, unless an exemption specifically applies to such
conduct. To supplement these provisions, ERISA sections 406(a)(1)(E)
and 407(a) impose restrictions on the nature and extent of plan
investments in assets such as ``employer securities'' (as defined in
ERISA section 407(d)(1)) and ``employer real property'' (as defined in
ERISA section 407(d)(2)). The transactions prohibited under ERISA
sections 406 and 407 are referred to as ``prohibited transactions.''
Most of the transactions prohibited by ERISA section 406 are
likewise prohibited by Code section 4975, which imposes an excise tax
on those transactions to be paid by each ``disqualified person''
(defined in Code section 4975(e)(2) in virtually the same manner as the
term ``party in interest'' is defined in ERISA section 3(14)) who
engages in the prohibited transactions.
Prohibited Transaction Exemptions
Both ERISA and the Code contain various statutory exemptions from
the prohibited transaction rules. These statutory exemptions were
enacted by Congress to prevent the disruption of a number of customary
business practices
[[Page 14723]]
involving employee benefit plans, parties in interest, and fiduciaries.
The statutory exemptions afford relief for transactions such as loans
to participants and stock ownership plans, the provision of services
necessary for the operation of a plan, certain investment advice
transactions involving individual account plan participants and
beneficiaries, and the investment of plan assets into deposits in
certain financial institutions regulated by state or Federal agencies.
In addition to the statutory exemptions, ERISA section 408(a)
authorizes the Secretary to grant administrative exemptions from the
restrictions of ERISA sections 406 and 407(a) in instances where the
Secretary makes a finding on the record that relief is (1)
administratively feasible, (2) in the interests of the plan and its
participants and beneficiaries, and (3) protective of the rights of
participants and beneficiaries of such plan. Similarly, Code section
4975(c)(2) of the Code authorizes the Secretary of the Treasury or his
delegate to grant administrative exemptions from the prohibitions of
Code section 4975(c)(1) upon making the same findings. Before an
exemption is granted, notice of its pendency must be published in the
Federal Register and interested persons must be given the opportunity
to comment on the proposed exemption. If the exemption transaction
involves potential fiduciary self-dealing or conflicts of interest, an
opportunity for a public hearing must be provided.
ERISA section 408(a) authorizes the Secretary to grant
administrative exemptions on either an individual or a class basis.
Class exemptions provide general relief from the restrictions of ERISA,
the Code, and FERSA to those parties in interest who engage in the
categories of transactions described in the exemption and who also
satisfy the conditions stipulated by the exemption. Persons who are in
conformity with all the requirements of a class exemption are not
ordinarily required to seek an individual exemption for the same
transaction from the Department. Individual exemptions, by contrast,
involve case-by-case determinations as to whether the specific facts
represented by an applicant concerning an exemption transaction as well
as the conditions applicable to such a transaction support a finding by
the Department that the requirements for relief from the prohibited
transaction provisions of ERISA, the Code, and FERSA have been
satisfied in a particular instance. While the vast majority of
administrative exemptions issued by the Department are the product of
requests for relief from individual applicants or the broader employee
benefits community, ERISA section 408(a) also authorizes the Department
to initiate exemptions on its own motion.
In considering individual exemption requests from applicants, the
Department exercises its authority under ERISA section 408(a) by
carefully examining the decision-making process utilized by a plan's
fiduciaries with respect to an exemption transaction. In general, the
Department does not make determinations concerning the appropriateness
or prudence of the investment proposals submitted by exemption
applicants. However, the Department ordinarily will not give favorable
consideration to an exemption request if the Department believes that
the proposed transactions are inconsistent with the fiduciary
responsibility provisions of ERISA sections 403 and 404. To protect
plans and their participants, the Department requires that an exemption
transaction be designed to minimize the potential for conflicts of
interest or self-dealing. Moreover, the structure of the transaction
under consideration should preclude unilateral action by the applicant
that could disadvantage the plan.
Prohibited Transaction Exemption Procedure
ERISA section 408(a) and Code section 4975(c)(2) direct the
Secretary and the Secretary of the Treasury (the Secretaries),
respectively, to establish procedures for granting administrative
exemptions. In connection with this directive, ERISA section 3003(b)
directs the Secretaries to consult and coordinate with each other with
respect to the establishment of rules applicable to the granting of
exemptions from the prohibited transaction restrictions of ERISA and
the Code. Further, under ERISA section 3004, the Secretaries are
authorized to develop rules on a joint basis that are appropriate for
the efficient administration of ERISA.
Pursuant to these statutory provisions, the Secretaries jointly
issued an exemption procedure on April 28, 1975 (ERISA Procedure 75-1,
40 FR 18471, also issued as Rev. Proc. 75-26, 1975-1 C.B. 722). Under
this procedure, a person seeking an exemption under both ERISA section
408(a) and Code section 4975 was obliged to file an exemption
application with both the Internal Revenue Service (IRS) and the
Department. However, requiring applicants to seek exemptive relief for
the same transaction from two separate Federal departments soon proved
administratively cumbersome.
To resolve this problem, section 102 of Presidential Reorganization
Plan No. 4 of 1978 (3 CFR, 1978 Comp., p. 332), reprinted in 5 U.S.C.
app. at 672 (2006), and in 92 Stat. 3790 (1978)), effective on December
31, 1978, transferred the authority of the Secretary of the Treasury to
issue exemptions under Code section 4975, to the Secretary with certain
enumerated exceptions. As a result, the Secretary possesses authority
under Code section 4975(c)(2) and ERISA section 408(a) to issue
individual and class administrative exemptions from the prohibited
transaction restrictions of ERISA and the Code. The Secretary has
delegated this authority, along with most of the Secretary's other
responsibilities under ERISA, to the Assistant Secretary of Labor for
the Employee Benefits Security Administration.\1\
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\1\ See Secretary of Labor's Order 6-2009, 74 FR 21524 (May 7,
2009).
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FERSA also contains prohibited transaction rules similar to those
found in ERISA and the Code that are applicable to parties in interest
with respect to the Federal Thrift Savings Fund established by FERSA.
The Secretary is directed under FERSA to prescribe, by regulation, a
procedure for granting administrative exemptions from certain of those
prohibited transactions.\2\ The Secretary also delegated this
rulemaking authority under FERSA to the Assistant Secretary of Labor
for the Employee Benefits Security Administration.\3\
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\2\ 5 U.S.C. 8477(c)(3).
\3\ See Secretary of Labor's Order 6-2009, 74 FR 21524 (May 7,
2009).
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Over time, the Department has issued additional guidance explaining
its policies and practices relating to the consideration of exemption
applications. In 1985, the Department published a statement of policy
concerning the issuance of retroactive exemptions from the prohibited
transaction provisions of section 406 of ERISA and section 4975 of the
Code (ERISA Technical Release 85-1, January 22, 1985). This statement
noted that in evaluating future applications for retroactive
exemptions, the Department would ordinarily take into account a variety
of objective factors in determining whether a plan fiduciary had
exhibited good faith conduct in connection with the past prohibited
transaction for which relief is sought (such as whether the fiduciary
had utilized a contemporaneous independent appraisal or reference to an
objective third-party source, e.g., a stock
[[Page 14724]]
exchange, in establishing the fair market value of the plan assets
acquired or disposed of by the plan in connection with the transaction
at issue). However, while noting that the satisfaction of such
objective criteria might be indicative of a fiduciary's good faith
conduct, the release cautioned that the Department would routinely
examine the totality of facts and circumstances surrounding a past
prohibited transaction before reaching a final determination on whether
a retroactive exemption is warranted.
In 1990, the Department published a final regulation (29 CFR
2570.30 through 2570.52 (1991), reprinted in 55 FR 32847 (August 10,
1990)), setting forth a revised exemption procedure that superseded
ERISA Procedure 75-1 (the Exemption Procedure Regulation). This
regulation, which became effective on September 10, 1990, reflected the
jurisdictional changes made by Presidential Reorganization Plan No. 4
and extended the scope of the exemption procedure to applications for
relief from the FERSA prohibited transaction rules. In addition, the
Exemption Procedure Regulation codified various informal exemption
guidelines developed by the Department since the adoption of ERISA
Procedure 75-1.
In 1995, the Department issued a publication entitled ``Exemption
Procedures under Federal Pension Law'' (the 1995 Exemption
Publication). In addition to providing a brief overview of the
exemption process, the 1995 Exemption Publication included definitions
of technical terms such as ``qualified independent fiduciary,''
``qualified independent appraiser,'' and ``qualified appraisal
report.'' These definitions, derived from conditions contained in
previously granted exemptions, provide important guidance about the
Department's standards concerning the independence, knowledge, and
competence of third-party experts retained by a plan to review and
oversee an exemption transaction, as well as the contents of the
reports and representations the Department ordinarily requires from
such experts.
Most recently, the Department published an updated Exemption
Procedure Regulation in 2011 (29 CFR 2570.30 through 2570.52
(2011)).\4\ The updated Exemption Procedure Regulation revised the
prohibited transaction exemption procedure to reflect changes in the
Department's exemption practices since the previous exemption procedure
was issued in 1990. Among other things, the Department consolidated
elements of the exemption policies and guidance previously found in
ERISA Technical Release 85-1 and the 1995 Exemption Publication within
a single, comprehensive final regulation. The updated Exemption
Procedure Regulation promoted the prompt and efficient consideration of
all exemption applications by (1) clarifying the types of information
and documentation generally required for a complete filing, (2)
affording expanded opportunities for the electronic submission of
information and comments relating to an exemption, and (3) providing
plan participants and other interested persons with a more thorough
understanding of the exemption under consideration.
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\4\ 76 FR 66637 (October 27, 2011).
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Proposed Changes to the Exemption Procedure Regulation
The current Exemption Procedure Regulation consists of 23
individual sections (Sec. Sec. 2570.30 through 2570.52) arranged by
topic that generally reflect the chronological order of the steps the
Department takes to process an exemption application. This proposed
revision to the Exemption Procedure Regulation retains the current
section-by-section topical structure and most of the operative
language. The Department made some proposed changes to the Exemption
Procedure Regulation to improve its readability and other substantive
amendments that are discussed below. The Department requests comments
on these changes, particularly whether the changes improve the clarity
of the procedure and whether additional clarifying edits would be
useful. As discussed throughout this preamble, the Department is
interested in how its process may better allow the Department to ensure
administrative prohibited transaction exemptions satisfy the applicable
statutory criteria.
Section 2570.30
Section 2570.30 sets forth the scope of the Exemption Procedure
Regulation. It addresses filing and processing of applications for both
individual and class exemptions that the Department may propose and
grant pursuant to ERISA section 408(a), Code section 4975(c)(2), FERSA,
and on its own motion. Paragraph (b) broadly addresses the Department's
power to issue exemptions. The proposal revises the text that is
applicable to retroactive exemptions by including a statement that the
Department will, among many other things, review any retroactive
exemption application to determine whether any plan participants or
beneficiaries were harmed by the transaction for which retroactive
relief is sought. This language reinforces the Department's existing
policy that it, generally, will not support a request for a retroactive
exemption involving a transaction that negatively impacted participants
and beneficiaries. Further, the Department emphasizes in the amended
text that it will apply a high level of scrutiny to any retroactive
exemption application using longstanding standards that have been
previously set forth by the Department in the Exemption Procedure
Regulation. As a result, the Department strongly suggests that a party
that anticipates engaging in a transaction that would require exemptive
relief should contact the Department before engaging in the
transaction.
Paragraph (e) addresses oral requests for exemptions. Generally,
the Department will not accept oral exemption applications or orally
grant exemptions. The proposal revises the regulatory text to clarify
that the Department will provide feedback to oral inquiries but will
not be bound by that feedback. However, any statements made by the
party making the inquiry will become part of the administrative record.
Finally, the proposal adds a new paragraph (g), which provides that
the Department issues administrative exemptions at its sole discretion
based on the statutory criteria set forth in ERISA section 408(a) and
Code section 4975(c)(2). In conjunction with this amendment, the
proposal states that the existence of previously issued administrative
exemptions is not determinative of whether the Department will propose
future exemption applications with the same or similar facts, or
whether a proposed exemption will contain the same conditions as a
similar previously issued administrative exemption. The addition of
this language reinforces that Department's existing policy that it has
the sole discretionary authority to issue exemptions and is not bound
by facts or conditions of prior exemptions in making determinations
with respect to an exemption application. This policy allows the
Department to retain sufficient flexibility to grant exemptions that
are appropriate in an ever-changing business, legislative, and
regulatory policy environment.
Section 2570.31
Section 2570.31 sets forth definitions that are used throughout the
Exemption Procedure Regulation. While most of the definitions have not
been revised other than to improve readability, the
[[Page 14725]]
Department has made substantive revisions to several existing
definitions and added new definitions. The changes are proposed to
address issues that the Department has often experienced in its regular
review of exemption applications. The Department requests comments on
these revisions, including whether these proposed changes are clear,
appropriately reflect the manner in which entities interact with ERISA-
covered plans and plan participants and beneficiaries, and assist the
Department in making its statutory finding.
First, the proposal revises the definition of ``affiliate'' set
forth in paragraph (a) to include: (1) Any person directly or
indirectly through one or more intermediaries, controlling, controlled
by, or under common control with the person. For purposes of this
paragraph, the term ``control'' means the power to exercise a
controlling influence over the management or policies of a person other
than an individual; any officer, director, partner, employee, or
relative (as defined in ERISA section 3(15)) of any such person; or (2)
any corporation, partnership, trust, or unincorporated enterprise of
which such person is an officer, director, partner, or five percent or
more owner. The revision reflects the definition of affiliate the
Department commonly uses in most recent individual and class
exemptions. In addition to rewording the text for clarity, the revised
definition includes all employees and officers, rather than those who
are highly compensated (as defined in Code section 4975(e)(2)(H) or
have direct or indirect authority, responsibility, or control regarding
the custody, management, or disposition of plan assets involved in the
subject exemption transaction. This change will help the Department
more accurately identify whether a particular transaction involves
conflicts of interest.
The proposal also revises the definition of the term ``qualified
independent appraiser'' in paragraph (i). The amended definition
defines a qualified independent appraiser as any individual or entity
with appropriate training, experience, and facilities to provide a
qualified appraisal report on behalf of the plan regarding the
particular asset or property appraised in the report that is
independent of and unrelated to any party involved in the exemption
transaction (as defined in paragraph (l)). The Department determines
the independence of the appraiser based on all relevant facts and
circumstances. In making this determination, the Department will take
into account the amount of the appraiser's revenues and projected
revenues for the current Federal income tax year (including amounts
received for preparing the appraisal report) that will be derived from
parties involved in the exemption transaction relative to the
appraiser's revenues from all sources for the appraiser's prior Federal
income tax year and the appraiser's projected revenue for the current
Federal income tax year as well as the appraiser's related business
interests. An appraiser will not be treated as independent if the
revenues it receives, or is projected to receive, within the current
Federal income tax year from parties involved in the exemption
transaction are more than two percent of such appraiser's annual
revenues from all sources based upon either its prior Federal income
tax year or the appraiser's projected revenues for the current Federal
income tax year, unless the Department determines otherwise in its sole
discretion.
The proposal also revises the qualified independent appraiser
definition to provide that the appraiser must be independent of any
potential qualified independent fiduciary in addition to other parties
involved in the exemption transaction. The Department added this
language to ensure that the appraiser will not be pressured to deliver
a valuation reflecting undue influence from the fiduciary.
The Department proposes to revise the definition to clearly limit
the amount of present and projected revenue an appraiser may receive
from parties involved in the exemption transaction relative to revenues
it received from all sources. The Department is proposing to set this
limit at two percent determined using prior and projected tax year
information; provided, that the Department may, in its sole discretion,
determine otherwise. The revision clarifies the method that must be
used to calculate the limitation and ensures that all sources of income
are included in the analysis. The revised definition also emphasizes
the Department's default assumption that a two percent limitation is
essential to ensuring the appraiser's independence. These revisions are
intended to assist the Department in more accurately identifying
potential conflicts of interest that could affect an appraiser's
independence.
Further bolstering the independence of the appraiser, the
definition of a ``qualified appraisal report'' in paragraph (h) is
revised to require the report to be prepared solely on behalf of the
plan, which ensures that the qualified independent appraiser only takes
into account the interest of the plan and its participants and
beneficiaries when it produces the report.
The proposal revises the definition of a ``qualified independent
fiduciary'' in paragraph (j). A qualified independent fiduciary is
defined as any individual or entity with appropriate training,
experience, and facilities to act on behalf of the plan regarding the
exemption transaction in accordance with the fiduciary duties and
responsibilities prescribed by ERISA that is independent of and
unrelated to: Any party involved in the exemption transaction (as
defined in paragraph (l)) and any other party involved in the
development of the exemption request. In general, the Department will
determine the independence of a fiduciary based on of all relevant
facts and circumstances. Among other things, the Department will
consider whether the fiduciary has an interest in the subject
transaction or future transactions of the same nature or type. In
making this determination, the Department will also take into account,
among other things, the amount of both the fiduciary's revenues and
projected revenues for the current Federal income tax year (including
amounts received for preparing fiduciary reports) that will be derived
from parties involved in the exemption transaction relative to the
fiduciary's revenues from all sources for the prior Federal income tax
year or the fiduciary's projected revenues from all sources for the
current Federal income tax year. A fiduciary will not be treated as
independent if the revenues it receives or is projected to receive from
parties (and their affiliates) involved in the exemption transaction
within the current Federal income tax year are more than two percent of
either the fiduciary's annual revenues from all sources based upon its
prior year Federal income tax return or the fiduciary's projected
revenue for the current Federal income tax year, unless, in its sole
discretion, the Department determines otherwise.
As with the revision to definition of a qualified independent
appraiser, the proposal revises the definition of a qualified
independent fiduciary to ensure that the fiduciary is truly
independent. Thus, the definition is revised to require the fiduciary
to be independent not only from parties involved in the exemption
transaction but also from any other party involved in the development
of the exemption request. The revised language would include persons
that are not parties that engage in in the exemption transaction but
are otherwise involved in developing the exemption request, such as
consultants or advisors that assist a
[[Page 14726]]
plan sponsor in structuring exemption transactions and submitting
exemption applications.
Consistent with this approach, the proposal also revises the
independent fiduciary definition to state that the Department will
consider whether a fiduciary has an interest in the exemption
transaction or in future transactions of the same nature or type in
determining whether a fiduciary is independent. This language addresses
the Department's concern that a fiduciary may not be independent if it
has a business interest in promoting the exemption transaction. For
example, a fiduciary may be affected by a conflict of interest if it
motivated to use the exemption transaction to promote its fiduciary
services to potential clients contemplating similar transactions or if
its work with respect to the exemption transaction is connected to a
valued relationship with a third party, such as an investment advisor
or bank.
Finally, as with the definition of a qualified independent
appraiser, the proposal revises the independent fiduciary definition to
clearly limit the amount of present and projected revenue that a
fiduciary may receive from parties involved in the exemption
transaction across all of the fiduciary's related business interests.
This Department is proposing to set this limitation at two percent
using prior and projected tax year information; provided, that the
Department may, in its sole discretion, determine otherwise. The
revision clarifies how the percentage limitation is calculated and
ensures that all sources of income are included in the analysis. The
revised definition also emphasizes the Department's default assumption
that the revenue limitation is essential to ensuring the fiduciary's
independence. These revisions would assist the Department in more
accurately identifying potential conflicts, and, thereby, provide
important information for the Department to assess the independence of
the fiduciary involved in the exemption transaction.
The proposal also adds a new definition of ``pre-submission
applicant'' in paragraph (k) that defines a pre-submission applicant as
a party that contacts the Department, either orally or in writing, to
inquire whether a party with a particular fact pattern would need to
submit an exemption application and, if so, what conditions and relief
would be applicable. This definition does not include a party that
contacts the Department to inquire broadly without reference to a
specific fact pattern. The Department is proposing to add this
definition to clearly distinguish parties making inquiries that may
potentially lead to an exemption application from parties that simply
seek non-fact specific guidance. The distinction impacts how the
Department addresses the inquiries and whether an administrative record
is created.
Paragraph (l) adds a new definition of ``party involved in the
exemption transaction'' that includes the following: (1) A party in
interest (as defined in paragraph (f)); (2) any party (or its
affiliate) that is engaged in the exemption transaction; and (3) any
party (or its affiliates) that provides services with respect to the
exemption transaction to either the plan or a party described in (1) or
(2). This term replaces the more limited term ``party in interest'' in
multiple places throughout the Exemption Procedure Regulation to more
accurately describe parties that have interests in the exemption
transaction. The Department believes that parties engaged in the
transaction (and their affiliates) that are not ``parties in interest''
could have interests and potential conflicts that should be addressed
by the Exemption Procedure Regulation. Similarly, the Department
proposes to include service providers in the definition to ensure that
all parties with interests in the transaction are included.
Section 2570.32
The proposal makes two revisions to Sec. 2570.32. First, paragraph
(a) is revised to describe ``persons who may apply for exemption.'' The
Department is proposing to delete the language in paragraph (a) stating
that ``the Department will initiate exemption proceedings upon the
application of'' to clarify that this paragraph addresses only those
parties who are permitted to apply for an exemption but does not
address whether the Department is required to initiate an exemption
proceeding. The decision to initiate an exemption proceeding remains
within the Department's sole discretion.
The second revision addresses the creation of the administrative
record, because the start of the exemption application process, whether
through a formal application or contact by a pre-submission applicant,
is tied to the creation of the administrative record. To reflect the
addition of new paragraph (d), the Department has added ``and the
administrative record'' to the title of Sec. 2570.32.
The revision addresses questions applicants have historically asked
the Department regarding the creation of the administrative record.
Specifically, paragraph (d)(1) provides that the administrative record
is open for public inspection, pursuant to Sec. 2570.51(a), from the
date an applicant or pre-submission applicant provides any information
or documentation to the Office of Exemption Determinations. In the
past, some applicants were uncertain regarding when the administrative
record was available for public review. The proposal's language sets
forth the Department's longstanding position that the administrative
record is always available for public review, because the exemption
process is open, transparent, and subject to public scrutiny at all
times.
Paragraph (d)(2) provides that the administrative record includes,
but is not limited to, the following items: (1) Any documents submitted
to, and accepted by, the Department before the initial application,
whether provided in writing by the applicant or pre-submission
applicant or notes taken by the Department at a pre-submission
conference; (2) the initial exemption application and any modifications
or supplements thereto; (3) all correspondence with the applicant or
pre-submission applicant, whether before or after the applicant's
submission of the exemption application; and (4) any supporting
information provided by the applicant or pre-submission applicant
orally or in writing (as well as any comments and testimony received by
the Department in connection with an application). Importantly, the
language specifically includes all information provided by a pre-
submission applicant, whether in writing or orally. The pre-submission
information is included in the record because if a pre-submission
applicant pursues an application, the information provided by the
applicant before submitting its application will ultimately inform the
Department's decision making with respect to the exemption application.
In addition, the Department proposes to clarify that the administrative
record only includes information accepted by the Department. If, for
example, the applicant submits trades secrets, the Department will
reject the information and not include it in the administrative record
as discussed in Sec. 2570.33(c).
Finally, paragraph (d)(3) updates the regulation to reflect modern
methods of communication. Thus, the paragraph provides that if
documents are required to be provided in writing by either the
applicant or the Department, the documents may be provided either by
mail or electronically, unless otherwise required by the Department at
its sole discretion.
[[Page 14727]]
Section 2570.33
In Sec. 2570.33, the Department proposes to revise the regulatory
text to clarify situations in which it will not consider an exemption
application. The Department requests comments on these clarifications,
including other situations where the Department should or should not
consider an exemption application.
First, the Department is proposing to amend paragraph (a)(1) to
include applications that fail to include current information to
clarify that the Department will treat an applicant's failure to
include current information in the same manner as a failure to include
information. Absent current information, the Department cannot develop
an accurate understanding of the facts underlying an application.
The Department also is proposing to revise paragraph (a)(2), which
generally excludes from consideration an application involving: (1) a
transaction or transactions that are the subject of an investigation
for possible violations of part 1 or 4 of subtitle B of Title I of
ERISA or sections 8477 or 8478 of FERSA; or (2) a party in interest who
is the subject of such an investigation or who is a defendant in an
action by the Department or the IRS to enforce those provisions of
ERISA or FERSA.
The proposed revision expands the existing exclusion to include any
ERISA investigations (not only Sections 8477 and 8478), as well as
investigations under any other Federal or state law. The proposal also
expands the limitation on parties that are the subject of an
investigation or a defendant in an action brought by the Department or
the IRS to include any other regulatory agency enforcing ERISA, the
Code, FERSA, or any other Federal or state laws. The proposed expansion
of the paragraph addresses the Department's concerns regarding
prohibited transactions that are engaged in by bad actors. Before
considering an application for a transaction that otherwise is
prohibited, the Department must be completely free from doubt regarding
the transaction and the motivations of the parties involved in order to
make its findings under ERISA section 408(a).
The proposal deletes the language in the current paragraph (c)
regarding the administrative record, because that topic is now
addressed in proposed revisions to Sec. 2570.32 discussed above. The
proposal revises the part of paragraph (c) addressing the submission of
confidential information. Currently, the rule provides that if an
applicant designates any information required by the rule or requested
by the Department as confidential, the Department will determine
whether the information is material to the exemption determination. If
it determines the information to be material, the Department will not
process the application unless the applicant withdraws the claim of
confidentiality. The proposal revises this language to clarify that the
Department will not review an application that includes confidential
information, with an exception for confidential designations by a
Federal, state, or other governmental entity. This means that if an
applicant submits any confidential information, even outside of the
application itself, the Department will not review the information nor
process the exemption application. The Department will process that
application only after the applicant withdraws its claim of
confidentiality or revokes it submission of the confidential
information.
The revised language also states that by submitting an exemption
application, an applicant consents to public disclosure of the entire
administrative record pursuant to Sec. 2570.51. This revision places
the applicant on notice that it is consenting to the public disclosure
of all information in the administrative record when it submits an
exemption application.
In place of the current paragraph (d), the Department is proposing
to add a new paragraph (d) that governs communications with pre-
submission applicants as newly defined in Sec. 2570.31(k). Paragraph
(d) provides that the Department will not communicate with a pre-
submission applicant or its representative, whether through written
correspondence or a conference, if the pre-submission applicant does
not: (1) Identify and fully describe the transaction for which
exemptive relief is sought; (2) identify the applicant, the applicable
plan(s), and the relevant parties to the exemption transaction; and (3)
set forth the prohibited transaction provision(s) that the applicant
believes are applicable. This language is proposed to address a
recurring problem faced by the Department when a pre-submission
applicant seeks informal guidance from the Department while disclosing
an incomplete set of facts and later bases its arguments for an
exemption on the Department's informal guidance received before the
submission. While the Department welcomes pre-submission requests for
guidance, it is imperative that parties approaching the Department for
such guidance regarding a specific exemption transaction provide the
Department with sufficient information to allow it to properly
attribute the guidance to a specific pre-submission applicant and
determine the transaction for which such guidance is requested and the
relevant prohibited transaction provisions that are applicable to the
transaction.
Section 2570.34
Section 2570.34 addresses information the Department requires
applicants to include in class and individual exemption applications.
The proposal revises Sec. 2570.34 to ensure that the Department
receives sufficient information to evaluate an exemption application.
While the proposal expands the amount of information the Department
would require to be included in an application in some cases, the
Department's intention in expanding the required information is to
streamline the exemption process by ensuring that most of the
information the Department needs to make an exemption determination is
available to it when the application is submitted, which will reduce
the need for back and forth communication between the applicant and the
Department after the application is submitted. The Department requests
comments on the proposed revisions, including whether the Department
should consider other types of information.
Specifically, paragraphs (a)(1) and (3) are revised to require
addresses, phone numbers, and email addresses to be provided for the
applicants, representatives, and parties in interest. Requiring this
information to be included in the initial application would ensure that
the Department can efficiently contact the proper parties. In addition,
the Department is proposing to replace the original paragraph (a)(4)
with new paragraphs (a)(4), (5) and (a)(7) to facilitate the
Department's understanding of the decision-making process the applicant
undertook to determine that it was necessary to submit an exemption
application. Accordingly, new paragraph (a)(4) would require the
applicant to include in its application a description of: (1) The
reason(s) for engaging in the exemption transaction; (2) any material
benefit that a party involved in the exemption transaction may receive
as a result of the subject transaction (including the avoidance of any
materially adverse outcome by a party as a result of engaging in the
exemption transaction); and (3) the costs and benefits of the exemption
transaction to the affected plan(s), participants, and beneficiaries,
including quantification of those costs and benefits to the extent
possible. The Department is proposing
[[Page 14728]]
this language to facilitate its understanding of the underlying
rationale for the exemption transaction including the costs and
benefits for both the party involved in the transaction and the plan
and its participants and beneficiaries. For example, an applicant who
is a plan sponsor will need to provide not only a rationale for
engaging in the exemption transaction, but also a statement of the
costs and benefits to the sponsor, as well as the costs and benefits to
the plan.
The Department is proposing to add a new paragraph (a)(5) that
builds on paragraph (a)(4) by requiring applicants to provide a
detailed description of possible alternatives to the exemption
transaction that would not involve a prohibited transaction and why the
applicant did not pursue those alternatives. The Department's intention
in proposing this language is to require the applicant to evaluate
whether the exemption transaction could be structured in a manner that
would not result in a prohibited transaction. Structuring a transaction
in a manner that is prohibited by ERISA and requires an exemption
should not be an applicant's default approach. The Department believes
that an applicant must fully evaluate whether an exemption transaction
could be structured in a non-prohibited manner before applying for an
exemption that would attain the same results and benefits to the plan
and its participants and beneficiaries as the prohibited transaction.
The proposal also inserts a new paragraph (a)(7) that replaces the
prior requirement for an applicant to state why the transaction is
customary to the industry with a requirement for the applicant to set
forth a description of each conflict of interest or potential instance
of self-dealing that would be permitted if the exemption is granted.
The Department is proposing to make this change, because the prior
``customary to the industry'' language did not sufficiently inform the
Department of the conflicts of interest and instances of self-dealing
involved in an exemption transaction or the costs and benefits to a
plan and its participants and beneficiaries. The new language would
assist the Department in identifying conflicts of interest and
instances of self-dealing involved in an exemption transaction, and
thereby facilitate the Department's analysis regarding whether the
exemption transaction is structured to properly protect the interest of
the plan and its participants and beneficiaries. Together, the
proposal's new paragraphs (a)(4), (5), and (7) would help the
Department better understand the proposed transaction and its
implications, so that the Department could make the required findings
under ERISA section 408(a) as to whether a requested exemption would be
(1) administratively feasible, (2) in the interests of the plan and of
its participants and beneficiaries, and (3) protective of the rights of
participants and beneficiaries.
The final revisions to paragraph (a) are intended to provide
consistency among exemption applications. The revised paragraph (a)(8)
simply expands the disclosure requirement by requiring applicants to
include in their application a statement regarding whether the
transaction is the subject of investigation or enforcement actions by
any regulatory authority. This change is consistent with the amendments
proposed in Sec. 2570.33 and ensures that the Department has the
information it needs to make an informed decision regarding an
exemption application.
The proposal's new paragraph (a)(10) would requires that if any
exemption application uses a definition of the term ``affiliate,'' the
applicant include in its application a statement that either (1) the
definition of affiliate set forth in Sec. 2570.31(a) is applicable or
(2) explains why a different affiliate definition should be applied.
The Department believes this language will encourage the use of a
single, consistent affiliate definition among all exemptions, when
possible. This consistency will allow anyone who reviews an exemption
application to more easily compare provisions of different exemptions
and prevent the development of unforeseen exemption issues that could
result from variations in the definition.
Paragraph (b) addresses some of the Department's specific concerns
with respect to exemption transactions. The most substantial change
would add proposed paragraph (b)(2)(i), which requires applicants to
include a statement that the exemption transaction (A) will be in the
best interest of the plan and its participants and beneficiaries; (B)
all compensation received, directly or indirectly, by a party involved
in the exemption transaction will not exceed reasonable compensation
within the meaning of ERISA section 408(b)(2) and Code section
4975(d)(2); and (C) all of the statements to the Department, the plan,
or, if applicable, the qualified independent fiduciary or qualified
independent appraiser about the exemption transaction and other
relevant matters are not materially misleading at the time the
statements are made. Otherwise, the applicant must explain why these
exemption standards should not be applicable to the exemption
transaction.
For purposes of paragraph (b), an exemption transaction is in the
best interest of a plan if the plan fiduciary causing the plan to enter
into the transaction determines, with the care, skill, prudence, and
diligence under the circumstances then prevailing, that a prudent
person acting in a like capacity and familiar with such matters would,
in the conduct of an enterprise of a like character and with like aims,
enter into the exemption transaction based on the circumstances and
needs of the plan. Such fiduciary shall not place the financial or
other interests of itself, a party to the exemption transaction, or any
affiliate ahead of the interests of the plan, or subordinate the plan's
interests to any party or affiliate.
Paragraph (b)(2) generally incorporates compliance with ``impartial
conduct standards'' as formalized in Prohibited Transaction Exemption
2020-02 as a baseline condition for approved exemptions. However, the
Department recognizes that impartial conduct standards may not be
appropriate or necessary in all exemption transactions. Therefore,
paragraph (b)(2) gives applicants an opportunity to affirmatively
explain why the impartial conduct standards should not be applicable to
their exemption transactions.
Proposed paragraph (b)(4) (previously paragraph (b)(3)) provides
that if an advisory opinion has been requested by any party to the
exemption transaction from the Department with respect to any issue
relating to the exemption transaction, the exemption application must
include (1) a copy of the letter concluding the Department's action on
the advisory opinion request; or (2) if the Department has not yet
concluded its action on the request, a copy of the request or the date
on which it was submitted together with the Department's correspondence
control number as indicated in the acknowledgment letter. The
Department is revising this provision for readability and to require an
applicant to include with its application any opinion or guidance
issued by the Department and any other opinions or guidance issued by
Federal, state, or regulatory bodies regarding the exemption
transaction. The proposal expands the prior text to ensure that all
relevant information regarding the exemption transaction, including
guidance issued in connection to the transaction by other Federal,
state, or regulatory bodies is available to the Department when making
its determination whether to grant an exemption.
[[Page 14729]]
The Department proposes to make substantial revisions to the
requirements set forth in paragraphs (c) through (f) regarding
statements and documents about qualified independent appraisers and
qualified independent fiduciaries that are involved in an exemption
transaction. The changes relate to the revisions made to the
definitions of qualified independent appraiser and qualified
independent fiduciary in Sec. 2570.31. Overall, the proposed changes
further ensure that the appraiser and fiduciary are independent and
that their valuations and oversight over the exemption transaction are
reliable and valid.
The proposal's revised paragraph (c) addresses statements and
documents included in the application by the qualified independent
appraiser. The proposal extends the provisions of paragraph (c) to
auditors and accountants. As a result, paragraph (c) would apply to all
statements submitted by appraisers, auditors, and accountants to ensure
that the Department can rely on financial documents submitted by third
parties.
More specifically, the proposal would revise several provisions
that govern the information that must be included in any statements
submitted in an application by an appraiser, auditor or accountant.
First, a new paragraph (c)(1) would be added to require the statements
to include a signed and dated declaration under penalty of perjury
that, to the best of the qualified independent appraiser's, auditor's,
or accountant's knowledge and belief, all of the representations made
in such statement are true and correct.
Next, the Department is proposing to expand paragraph (c)(2) to
specifically address the contractual obligations of the appraiser,
auditor, or accountant. The revised provision requires a copy of the
qualified independent appraiser's, auditor's, or accountant's
engagement letter and, if applicable, contract with the plan describing
the specific duties the appraiser, auditor, or accountant shall
undertake to be included with an application. The proposed provision
provides that the appraiser, auditor, or accountant's letter or
contract may not: (1) Include any provision that provides for the
direct or indirect indemnification or reimbursement of the independent
appraiser, auditor, or accountant by the plan or another party for any
failure to adhere to its contractual obligations or to Federal and
state laws applicable to the appraiser's, auditor's, or accountant's
work; or (2) waive any rights, claims or remedies of the plan or its
participants and beneficiaries under ERISA, the Code, or other Federal
and state laws against the independent appraiser, auditor's, or
accountant's with respect to the exemption transaction.
Proposed paragraph (c)(2) would prevent appraisers, auditors, and
accountants from avoiding accountability to the plan and its
participants by relying on indemnification or reimbursement provisions,
whether direct or indirect, to avoid financial liability for their
failure to comply with their contract or state or Federal law. When
parties agree to relieve appraisers, auditors, and accountants from
accountability through releases, waivers, and indemnification or
reimbursement agreements, they undermine the protective conditions of
the exemption, compromise the independence of their services, and cast
doubt on the reliability of the service providers' work.
Building on the proposal's theme of independence, paragraph (c)(4)
would also be revised to state that submitted documents must contain a
detailed description of any relationship that the qualified independent
appraiser, auditor, or accountant has had or may have with the plan or
any party involved in the exemption transaction, or with any party or
its affiliates involved in the development of the exemption request
that may influence the appraiser, auditor, or accountant, including a
description of any past engagements with the appraiser, auditor, or
accountant. The amendment would add a requirement to the current
regulatory text requiring the appraiser, auditor, or accountant to
provide detailed information regarding relationships with any party or
its affiliates involved in the development of the exemption request
that may influence it. In addition to this expansion, the relationship
disclosure must include past engagements. The Department includes this
additional language in order to address instances in which a party has
potentially conflicting relationships because it is dependent on or
otherwise regularly involved with parties that develop transactions
that may rely on the receipt of exemptions as a part of its business.
The Department is proposing to delete the statement in current
paragraph (c)(4)(iii) that requires an applicant to submit a new
appraisal to the Department if an appraisal report is one year or more
old. This deletion would make clear to applicants that they must submit
a current appraisal report with their application, and that the
Department would not move forward with its analysis of an exemption
transaction without receipt of a recent appraisal report.
The proposal also makes changes in paragraph (c)(8). The revisions
are discreet changes that are consistent with the revised definition of
a qualified independent appraiser in Sec. 2570.31(i) and describe how
the revenue limitations thereunder are calculated.
Specifically with respect to the qualified independent appraiser,
the Department proposes to add a new paragraph (d) that would require
an applicant to include with its application the following information
regarding an appraiser: A statement describing the process by which the
independent appraiser was selected, including the due diligence
performed, the potential independent appraiser candidates reviewed, and
the references contacted; and a statement that the independent
appraiser has appropriate technical training and proficiency with
respect to the specific details of the exemption transaction. The
Department is proposing to add new paragraph (d) to promote a prudent
and loyal selection process to hire a qualified independent appraiser.
Without such information, the Department has little or no insight into
the prudence of the hiring process.
The Department similarly proposes to add a new paragraph (e) that
would require applicants requesting an exemption for transactions
requiring the retention of a qualified independent fiduciary to
represent the interest of the plan, to include a statement that: (1)
Describes the process by which the independent fiduciary was selected,
including the due diligence performed, the potential independent
fiduciary candidates reviewed, and the references contacted; and (2)
represents that the independent fiduciary has appropriate technical
training and proficiency with respect to ERISA and the Code and the
specific details of the exemption transaction to serve as an
independent fiduciary. As with paragraph (d), the new paragraph is
added to promote a prudent and loyal selection process for a critically
important plan service provider.
The Department would revise paragraph (f), which specifies the
information an applicant must include in the qualified independent
fiduciary's statement required to be submitted with its application. As
with the changes to the qualified independent appraiser's statement,
the changes to the qualified independent fiduciary's statement are
designed to bolster independence and reliability.
Accordingly, paragraph (f)(2) would be revised to provide the
applicant must include a copy of the qualified
[[Page 14730]]
independent fiduciary's engagement letter and contract, which could
not: (1) Contain any provisions that violates ERISA section 410, which
prohibits exculpatory provisions; (2) include any provision that
provides for the direct or indirect indemnification or reimbursement of
the independent fiduciary by the plan or other party for any failure to
adhere to its contractual obligations or to state or Federal laws
applicable to the independent fiduciary's work; or (3) waive any
rights, claims or remedies of the plan under ERISA, state, or Federal
law against the independent fiduciary with respect to the exemption
transaction.
The Department has proposed to include new paragraph (f)(2) to
ensure that the qualified independent fiduciary remains financially
responsible for its own decisions while acting as a fiduciary with
respect to the exemption transaction. This limitation extends to any
third party retained by the fiduciary in connection with the
fiduciary's engagement letter or contract.
In order to ensure that qualified independent fiduciaries have
sufficient resources to compensate plans for any losses for which they
are liable, the Department proposes to require such fiduciaries to
maintain fiduciary liability insurance in an amount that is sufficient
to indemnify the plan for damages resulting from a breach by the
independent fiduciary of either (1) ERISA, the Code, or any other
Federal or state law or (2) its contract or engagement letter under
proposed paragraph (f)(3). The insurance may not contain an exclusion
for actions brought by the Secretary or any other Federal, state, or
regulatory body; the plan; or plan participants or beneficiaries.
The Department understands that some entities that provide ERISA
fiduciary services with respect to exemption transactions may not be
either sufficiently liquid or capitalized to address liability that
might arise in connection with an exemption transaction, especially in
light of the proposal's language limiting indemnification,
reimbursement, and waivers. Without the addition of paragraph (f)(3),
the Department believes that the new provisions in paragraph (f)(2) may
not provide the protections to plans and their participant and
beneficiaries that the Department intends. By requiring independent
fiduciaries to acquire and maintain fiduciary liability insurance, the
Department believes the fiduciary is more likely to act prudently when
serving as a fiduciary with respect to the exemption transaction, and
plans, participate will receive better protection from liability
resulting from fiduciary breaches.
The proposal makes additional changes to paragraph (f) to further
bolster the qualified independent fiduciary's independence. First,
proposed paragraph (f)(6) would expand the existing acknowledgement
provision to require the acknowledgement to state that the fiduciary
understands its duties and responsibilities under ERISA; is acting as a
fiduciary of the plan with respect to the exemption transaction; has no
material conflicts of interest with respect to the exemption
transaction; and is not acting as an agent or representative of the
plan sponsor. The proposal expands the acknowledgement in order to
capture more potential conflicts. Under the proposed amendment, the
fiduciary no longer could simply acknowledge that it is an ERISA
fiduciary, but would also have to acknowledge that it is acting with
respect to the transaction solely in the interest of the plan, not
acting on behalf of the plan sponsor, and not subject to conflicts of
interest.
The proposal would also revise paragraph (f)(7) to provide that the
qualified independent fiduciary certify in writing that the exemption
transaction complies with the impartial conducts standards set forth in
proposed paragraphs (b)(2)(i)(A) through (C).
Paragraph (f)(9) is revised to reflect the changes to the
definition of a qualified independent fiduciary. The changes require
additional disclosures regarding the fiduciary's revenue to ensure that
the fiduciary meets the terms of the definition.
The proposal adds a new paragraph (f)(10) that would require the
qualified independent fiduciary to state that it has no conflicts of
interest with respect to the exemption transaction that could affect
the exercise of its best judgment as a fiduciary. The requirement would
put the fiduciary on the record that it has no conflicts that could
impact its judgment and, thereby, promote compliance with the
exemption's terms.
The final proposed revisions to paragraph (f) would require the
exemption application to address whether the qualified independent
fiduciary is under investigation or examination or engaged in any
litigation or continuing controversy. Specifically, the fiduciary would
be required to state that either, within the last five years, the
independent fiduciary has not been under investigation or examination
by, and has not engaged in litigation, or a continuing controversy
with, the Department, the Internal Revenue Service, the Justice
Department, the Pension Benefit Guaranty Corporation, the Federal
Retirement Thrift Investment Board, or any other Federal or state
entity involving compliance with provisions of ERISA, the Code, FERSA,
or other Federal or state law; or include a statement describing the
applicable investigation, examination, litigation or controversy. The
addition of this paragraph ensures that the Department would have full
knowledge of any potential issues or conflicts that involve the
fiduciary. Without a full disclosure by the fiduciary with respect to
all of items delineated in the paragraph, the Department may not be
able to fully evaluate the qualifications and independence of the
qualified independent fiduciary and whether the selection of the
fiduciary was prudent.
Lastly, a proposed new paragraph (f)(12) would connect with
proposed paragraph (f)(11) by requiring the exemption application to
include the qualified independent fiduciary's statement either that it
has not been either convicted or released from imprisonment, whichever
is later, within the last 13 years as a result of: (1) Any felony
involving abuse or misuse of such person's position or employment with
an employee benefit plan or a labor organization; any felony arising
out of the conduct of the business of a broker, dealer, investment
adviser, bank, insurance company or fiduciary; income tax evasion; any
felony involving the larceny, theft, robbery, extortion, forgery,
counterfeiting, fraudulent concealment, embezzlement, fraudulent
conversion, or misappropriation of funds or securities; conspiracy or
attempt to commit any such crimes or a crime of which any of the
foregoing crimes is an element; or any crime described in ERISA section
411 or (2) convicted by a foreign court of competent jurisdiction or
released from imprisonment, whichever is later, as a result of any
crime, however denominated by the laws of the relevant foreign
government, that is substantially equivalent to an offense described in
(1) and a description of the circumstances of any such conviction; or a
statement describing a conviction or release from imprisonment
described in (1) or (2). As with proposed paragraph (f)(11), the
required statement would ensure that the Department has important
information relevant to the qualifications and independence of the
fiduciary and to the prudence and loyalty of the applicant's selection
of the independent fiduciary.
[[Page 14731]]
Section 2570.35
Section 2570.35 addresses information that solely needs to be
included in an individual exemption application. As with changes
elsewhere in this proposal, multiple changes are made to current Sec.
2570.35 for readability and consistency with changes made in other
sections of the Exemption Procedure Regulation. In addition, some minor
changes are included in the proposal that would require the mail and
email addresses of the plan and parties in interest to which the
exemption application applies and a reminder that applicants should not
submit social security numbers. The Department requests comments on
these changes, including the clarified requirements related to
information about previously consummated exemption transactions and
criminal convictions.
Beyond those changes, the proposal revises paragraph (a)(6) to more
clearly address foreign convictions. While the Department believes the
current language includes foreign convictions, the proposal now clearly
would require applicants to disclose in their application whether,
within the last thirteen years, they or any party involved in the
exemption had been convicted by a foreign court of competent
jurisdiction or released from imprisonment, whichever is later, as a
result of any crime, however denominated by the laws of the relevant
foreign government, that is substantially equivalent to an offense
described in paragraph (a)(6)(i) and a description of the circumstances
of any such conviction. For purposes of this section, a person shall be
deemed to have been ``convicted'' from the date of the trial court's
judgment, regardless of whether that judgment remains under appeal and
the foreign jurisdiction considers a trial court judgment final while
under appeal. Clarifying the treatment of foreign convictions serves to
remove uncertainty from the exemption application process and ensures
that the Department receives all relevant information.
The proposal also revises current paragraph (a)(12), which requires
the applicant to state the percentage of plan assets affected by the
exemption transaction to provide that if the exemption transaction
includes the acquisition of an asset by the plan, the fair market value
of the asset to be acquired must be included in both the numerator and
denominator of the applicable fraction. The new language simply
clarifies the Department's understanding of how to calculate the fair
market value percentage in an acquisition so that the percentage
accurately reflects the impact of the exemption transaction on overall
plan assets.
Paragraph (a)(18) requires applicants to provide information on
which parties will bear the cost of the exemption application and
notifying interested persons. The proposal revises and expands the
paragraph to require that the applicant disclose the person(s) or
entity who will bear the costs of: (1) The exemption application; (2)
any commissions, fees, or costs associated with the exemption
transaction, and any related transaction; and (3) notifying interested
persons; provided, in each case, that the plan may not bear the costs
of the exemption application, commissions, fees, and costs incurred to
notify interested persons unless the Department determines, at its sole
discretion, that a compelling circumstance exists that necessitates the
payment of these expenses by the plan. The expanded language clarifies
that the disclosure is intended to capture all of the costs and fees
associated with the exemption transaction, not just those immediately
derived from the submission of the exemption application. In this way,
the Department can better understand the true cost of a particular
exemption transaction. Further, the new language emphasizes the
Department's view that the costs of the application, exemption
transaction, and notice should not be borne by the plan and its
participants and beneficiaries. Unless truly compelling circumstance
exist, exemption transaction expenses should be the responsibility of
parties other than the plan.
Finally, the proposal adds a new paragraph (a)(20). The new
paragraph requires the applicant to state in its application whether
any prior transactions have occurred between (1) the plan or plan
sponsor and (2) a party involved in the exemption transaction.
Requiring this information would allow the Department to determine
where the exemption transaction fits in the relationship between the
plan and the parties involved in the exemption transaction and to
evaluate whether the exemption transaction is part of a larger set of
transactions or a pattern of practice.
The proposal makes a minor change to paragraph (b)(4). Currently,
the paragraph requires the application to contain a disclosure of a net
worth statement with respect to any party in interest providing a
personal guarantee with respect to the exemption transaction. The
proposal expands this language to cover not just parties in interest,
but any party providing such a guarantee. The expansion of the language
would allow the Department to more accurately determine the value of
any guarantee associated with the exemption transaction.
In accordance with its discussion of Sec. 2570.30 above as it
pertains to retroactive exemption requests, the Department would also
make specific revisions to the requirements for retroactive exemptions
in paragraph (d). The Department proposes to amend current paragraph
(d)(1) to state that the Department will consider exemption requests
for retroactive relief only when (1) the safeguards necessary for the
grant of a prospective exemption were in place at the time at which the
parties entered into the transaction, and (2) the plan and its
participants and beneficiaries have not been harmed by the transaction.
An applicant for a retroactive exemption must demonstrate that the
responsible plan fiduciaries acted in good faith by taking all
appropriate steps necessary to protect the plan from abuse, loss, and
risk at the time of the transaction. An applicant should further
explain and describe whether the transaction could have been performed
without engaging in a prohibited transaction. The proposal revises
prior language to emphasize the applicant must demonstrate that the
plan and its participants and beneficiaries were not harmed by the
exemption transaction. The Department cannot readily make the findings
required by Section 408(a) of ERISA that the transaction is in the
interests of the plan and its participants and beneficiaries, and
protective of their rights, if, in fact, the transaction was harmful to
plan participants and beneficiaries. Further, the applicant must
demonstrate that the plan fiduciaries took all appropriate steps
necessary to prevent abuse, loss, and risk when the transaction took
place. Including such information in the exemption application
demonstrates to the Department that the fiduciaries were acting
prudently to protect the plan and its participants and beneficiaries
when the transaction took place. Consistent with this requirement, the
proposed amendment includes language requiring the applicant to show
that it evaluated other possibilities to the exemption transaction and
made a determination that the exemption transaction was the appropriate
option in light of the other possible solutions that were available, if
any.
In order to assist applicants in demonstrating that they acted in
good faith when entering into a previously
[[Page 14732]]
consummated exemption transaction, proposed paragraph (d)(2) provides
factors the Department will take into account when reviewing a
retroactive exemption application. Paragraph (d)(2)(i) is revised to
state that one of the factors the Department will consider is the
involvement of an independent fiduciary before a transaction occurs who
acts on behalf of the plan and is qualified to negotiate, approve, and
monitor the transaction; provided, however, the Department may
consider, at its sole discretion, an independent fiduciary's
appointment and retrospective review after completion of the exemption
transaction due to exigent circumstances. The proposal revises the
prior language in order to provide that, in certain exigent
circumstances, the Department may consider, at its sole discretion, the
approval of an independent fiduciary after the fact. The Department
recognizes that under certain rare and extreme circumstance an
independent fiduciary's approval of the transaction after the fact may
serve to assist the Department in determining whether an applicant
acted in good faith.
The proposal also revises paragraph (d)(2)(v) to assist with the
good faith determination. Under the amendment, the applicant would be
required to submit evidence that the plan fiduciary did not engage in
an act or transaction that the fiduciary should have known was
prohibited under ERISA section 406 and/or Code section 4975 consistent
with its ERISA fiduciary duties and responsibilities. The revised
language applies the more appropriate ERISA standard that a fiduciary
is responsible not only for what it knows, but what it should have
known. Setting forth this standard ensures that the plan fiduciary
actively engaged and evaluated the exemption transaction.
Finally, the proposal revises the last paragraph on retroactive
exemptions. Paragraph (d)(3) addresses the Department's position that
it will not consider retroactive exemption requests if the exemption
transaction resulted in a loss for the plan. The proposal modifies the
existing language to make absolutely clear that the Department's
starting presumption is that it will simply not consider such requests.
However, the Department also clarifies that the determination as to
loss is only applied at the time of the exemption application. Thus, if
the facts later show that the exemption transaction did result in a
loss months or years after the completion of the exemption application,
that information is not relevant to the exemption determination, which
is made based on the facts available at the time.
Section 2570.36
Section 2570.36 addresses where to file an exemption application.
The proposal modernizes the submission process by no longer requiring a
paper submission, and instead directs applicants to [email protected] for
submission. Applicants would retain the right to submit a paper
application, and the proposal provides current information on the
correct delivery addresses while noting that that the address published
in the Exemption Procedure Regulation may change over time. The
Department will always provide the current submission address on its
website.
Section 2570.37
Section 2570.37 addresses an applicant's duty to supplement the
exemption application. The proposal revises paragraph (a) to state that
applicants have a duty to promptly notify the Department of any
material changes to facts or representations either during the
Department's consideration of the application or following the
Department's grant of an exemption. This duty only extends to the
information that was provided at the time of the grant of the
exemption. The proposal also expands the duty to disclose to the
Department whether a party participating in the exemption transaction
is the subject of an investigation or enforcement act in paragraph (b)
by proposing to include investigative and enforcement actions by any
Federal or state governmental entity, not just the Department, the
Internal Revenue Service, the Justice Department, the Pension Benefit
Guaranty Corporation, and the Federal Retirement Thrift Investment
Board.
Section 2570.38
Section 2570.38 addresses the issuance of tentative denial letters
before the Department issues a final denial letter. Tentative denial
letters, often referred to as TD letters, inform the applicant of
issues that it needs to resolve with the Department before the
Department is able to grant an exemption. The proposal revises the text
to clarify that the Department may extend the twenty-day period during
which an applicant normally would be required to request a hearing or
notify the Department of its intent to submit additional information
following the issuance of a tentative denial letter at its sole
discretion. The Department is proposing this change to inform
applicants that the 20-day period provides a hard deadline for the
applicant to reply unless the Department chooses to extend the period
at its sole discretion based on the facts and circumstances.
Section 2570.39
Section 2570.39 addresses the applicant's ability to submit
additional information. Consistent with other revisions to the
Exemption Procedure Regulation, the proposal revises the text to update
the manner by which the applicant may communicate with the Department.
Beyond those updates, the proposal revises paragraph (b), and then
makes conforming changes throughout the section, to provide that while
the applicant is required to submit the additional information within
forty days of the date the tentative denial letter was issued by the
Department, the Department may, at its sole discretion extend the time
period. As with Sec. 2570.38, this change is made to inform the
applicant that the time period is a hard deadline, unless the
Department chooses to extend the period pursuant to its own discretion
based on the facts and circumstances.
The proposal also deletes paragraph (d). The paragraph provided
that if an applicant could not submit all of the supplementary
information within the forty-day time period (unless extended by the
Department), it could withdraw the application and reinstate it at a
later time. The proposal deletes this provision to be consistent with
proposed changes to Sec. 2570.44, which covers withdrawn applications.
As described below, the Department proposes to amend its approach
regarding withdrawals and reapplications in that section.
Section 2570.40
Section 2570.40 addresses conferences between the applicant, or its
representative, and the Department. The Department requests comments
related to the revisions, particularly whether additional information
or clarity might be useful.
Paragraph (b) provides that, generally, an applicant is entitled to
only one conference under the Exemption Procedure Regulation. The
proposal retains this text, but adds additional language providing that
the Department may request the applicant to participate in additional
conferences at its sole discretion. The Department would make such a
request if it determines the conferences are appropriate based on the
facts and circumstances of the exemption application.
The Department also proposes to revise paragraphs (d) through (h),
which
[[Page 14733]]
govern the timing of conferences and the submission of information. As
with changes to Sec. Sec. 2570.39 and 2570.40(b), the proposed
amendment revises the sections to provide that the Department may, at
its sole discretion extend time periods. These changes are made to
similarly inform the applicant that the time periods outlined in the
section provide a hard deadline for the applicant, unless the
Department, based on the facts and circumstances, chooses to extend the
period pursuant to its own discretion.
The proposal also adds a new paragraph (i) providing that the
Department, at its sole discretion, may hold a conference with any
party, including the qualified independent fiduciary or the qualified
independent appraiser, regarding any matter related to an exemption
request without the presence of the applicant or other parties to the
exemption transaction or their representatives. Any such conferences
may occur in addition to the conference with the applicant described in
Sec. 2570.40(b). The proposal adds this language to clarify that the
Department is not limited with respect to whom it holds conferences.
The Department proposes to reserve this right, because it may determine
that under certain circumstances the Department may need to meet with a
third party in order accurately assess the exemption application. For
example, the Department may determine that a discussion with a
qualified independent fiduciary without the presence of the applicant
or its representative, may provide additional insight into the
qualified independent fiduciary's work if the applicant is not present
to influence the explanation of the fiduciary's work product or limit
the topics which are discussed.
Section 2570.41
Section 2570.41 addresses final denial letters, which are the final
action taken by the Department with respect to an application if the
Department has determined that an exemption will not be granted for an
exemption transaction. The proposal adds a new paragraph (a), which
provides that the Department will issue a final denial letter without
issuing a tentative denial letter under Sec. 2570.38 or conducting a
hearing on the exemption under either Sec. 2570.46 or Sec. 2570.47,
if the Department determines, at its sole discretion, that: (1) The
applicant has failed to submit information requested by the Department
in a timely manner; (2) the information provided by the applicant does
not meet the requirements of Sec. Sec. 2570.34 and 2570.35; or (3) if
a conference has been held between the Department and the applicant
before the issuance of a tentative denial letter during which the
Department and the applicant addressed the reasons for denial that
otherwise would have been set forth in a tentative denial letter
pursuant to Sec. 2570.38. While the language of Sec. Sec. 2570.38,
2570.46, and 2570.47 does not require a tentative denial letter to be
sent or a hearing occur under all circumstances, the current language
does not clearly state that the Department may issue a final denial
letter without taking those steps. To clear up this uncertainty, the
proposal adds the new text to make clear that the Department, based on
the reasons outlined herein, may issue final denial letters without
tentative denial letters or hearings. The Department requests comments
on the proposed revisions, including whether there are any
circumstances in which plan participants and beneficiaries may be
adversely impacted by the issuance of a final denial letter where the
Department has not first issued a tentative denial letter.
The proposal also adds a new paragraph (e) which states the
Department will issue a final denial letter where the applicant either
(1) asks to withdraw the exemption application or (2) communicates to
the Department that it is not interested in continuing the application
process. This revision is consistent with the changes being made in
Sec. 2570.44. The proposal adds this text in order to provide that if
the applicant decides it no longer is interested in an exemption,
whether communicated through either a withdrawal or a statement of
disinterest, the Department will formally memorializes the ultimate
disposition of the application by issuing a final denial letter. The
proposed amendment will help the Department more clearly track and
manage exemption applications.
Section 2570.42
When the Department comes to the initial decision that the issuance
of an exemption is warranted, Sec. 2570.42 provides that the
Department must provide for notice and comment through the publication
of a proposed exemption in the Federal Register. The proposal revises a
portion of paragraph (d). Previously, the paragraph provided that when
the proposed exemption includes relief from ERISA section 406(b), Code
section 4975(c)(1)(E), or FERSA section 8477(c)(2), the proposal must
inform interested persons who would be adversely affected by the
transaction of their right to request a hearing under Sec. 2570.46.
The proposal deletes the reference to interested persons who would be
adversely affected by the exemption transaction, thus, making the text
applicable to all interested persons. This revision was made to both
reflect the difficulty in determining which parties are adversely
affected and to ensure all parties that might have relevant information
to the Department's final determination are provided with an
opportunity to communicate that information.
Section 2570.43
Upon publication of a proposed exemption in the Federal Register,
Sec. 2570.43 provides that the applicant must provide notice to
interested persons of the pendency of the exemption. The section
outlines the process by which the notice is drafted and provided. The
proposal revises paragraph (a) to delete ``adversely'' and replace it
with ``materially'' when applying the term to the interested parties'
right to a hearing to remain consistent with the proposal's revision to
Sec. 2570.42 discussed above. The proposal also makes minor changes
regarding how a commenter may submit their comment and adds language to
existing text advising commenters not to disclose personal data that
also advises commenters not to submit confidential or otherwise
protected information.
Section 2570.44
Section 2570.44 addresses the withdrawal of an exemption
application. The existing provision allows an applicant to withdraw
their application without the Department's issuance of a formal final
denial letter. The proposal revises paragraph (b) to provide explicitly
that that Department will terminate all proceedings regarding the
application upon receiving an applicant's withdrawal request and issue
a final denial letter. The issuance of the final denial letter will
formally close the application and allow the Department to better
manage its inventory of exemption applications.
The proposal revises paragraph (d) to provide that if an applicant
chooses to reapply after withdrawing its application, the applicant
must update all previously furnished information with respect to the
prior application and the exemption transaction. Applicants currently
can reapply without providing additional information after withdrawing
their applications, unless the request occurs more than two years after
withdrawal; however, the Department believes that applicants should be
required to completely update all information when they reapply for an
exemption. Therefore, the proposal
[[Page 14734]]
treats the withdrawal as a formal denial, which shifts the burden to
the applicant to present an updated application to the Department for
its review.
Finally, the proposal adds a new paragraph (f) stating that
following the withdrawal of an exemption application, the
administrative record will remain subject to public inspection pursuant
to Sec. 2570.51. The Department is proposing this revision to clearly
set forth the Department's policy that the administrative record for an
exemption will always be available for public inspection after it is
created.
Section 2570.45
Section 2570.45 addresses formal requests for reconsideration
following a denial. The proposal adds a new paragraph (g), which
provides that a request for reinstatement of an exemption application
following a withdrawal pursuant to Sec. 2570.44(d) is not a request
for reconsideration governed by Sec. 2570.45. The Department is adding
this text to draw a clear distinction between Sec. Sec. 2570.44 and
2570.45.
Section 2570.46
Current Sec. 2570.46 covers the right to a hearing with respect to
a proposed exemption that provides relief from ERISA section 406(b),
Code section 4975(c)(1)(E) or (F), or FERSA section 8477(c)(2) for any
interested person who may be adversely affected by the exemption. The
Department is proposing to expand the right to a hearing to any person
who may be materially affected by an exemption that provides the relief
described in this section. The determination of whether a person is
materially affected would be at the sole discretion of the Department.
The proposal deletes the reference to interested persons to allow any
party materially affected by the exemption to provide material
information. The Department requests comments on this provision,
including information about the benefits or drawbacks of holding a
hearing before deciding whether to grant a proposed exemption.
Similarly, the Department is changing the word ``adversely'' to
``materially'' in order to capture all relevant information with
respect to the exemption transaction. Combined, these revisions assist
the Department in its review of the exemption transaction by ensuring
that potentially helpful information is not excluded.
The proposal also makes a minor revision to paragraph (b). The
Department is inserting language to explicitly state that the
Department will hold a hearing when it is necessary to explore material
factual information with respect to the proposed exemption. Factual
information is limited to the proposed exemption in order to ensure
that the hearing is relevant to the Department's exemption
determination.
Section 2570.47
The proposal does not make any revisions to Sec. 2570.47.
Section 2570.48
Section 2570.48 restates the Department's ERISA section 408
statutory finding requirements. The proposal's only material change was
to clarify that the Department must make a finding that the exemption
is administratively feasible ``for the Department.'' The language was
revised to add ``for the Department'' in order to clarify that the
finding concerns whether the Department can feasibly administer the
exemption, not the applicant.
Section 2570.49
Section 2570.49 addresses the various effects of and limits on the
grant of an exemption. The proposal revises paragraph (e) to clarify
that the determination as to whether a particular statement contained
in (or omitted from) an exemption application constitutes a material
fact or representation based on the totality of the facts and
circumstances is made by the Department in its sole discretion. The
addition of the ``sole discretion'' language reinforce the language of
the existing paragraph and clarifies that the Department retains sole
discretion with respect to the determination.
Section 2570.50
Section 2570.50 addresses the revocation and modification of
existing exemptions. The Department requests comments on the revisions,
including information about what steps might be taken to mitigate any
harm to plan participants and beneficiaries in the event an exemption
is revoked or modified.
The proposal substantially revises paragraph (a) to provide that,
if material changes in facts, circumstances, or representations occur
after an exemption take effect, including whether a qualified
independent fiduciary resigns, is terminated, or is convicted of a
crime, the Department, at its sole discretion, may take steps to revoke
or modify the exemption. In the event that the qualified independent
fiduciary resigns, is terminated, or is convicted of a crime, the
proposal requires the applicant to notify the Department within thirty
30 days of the resignation, termination, or conviction, and the
Department reserves the right to request the applicant to provide the
Department with any of the information required pursuant to Sec.
2570.34(e) and (f) at a time determined by the Department at its sole
discretion.
The proposal revises paragraph (a) to ensure that granted
exemptions remain protective of plans and their participants and
beneficiaries. The Department reserves the right at its sole discretion
to determine if material changes impact the grounds upon which the
exemption was issued, thereby necessitating a change. The paragraph
provides a tool by which the Department can evaluate ongoing exemptions
and ensure the exemptions continue to meet the ERISA statutory
requirements.
The proposal's revision of paragraph (a) also expands beyond the
core material facts to address the qualified independent fiduciary. In
many exemptions that employ qualified independent fiduciaries, the
fiduciaries represent one of the exemption's core protective
conditions. It is imperative that an applicant inform the Department if
the independent fiduciary ceases to serve in that role because it
resigns, is terminated, or is convicted of a crime. The proposed
language would ensure that the Department will be informed of the
changed circumstances and require the applicant to take necessary
actions to ensure the exemption continues to be protective of the plan
and its participants and beneficiaries.
In connection with the qualified independent fiduciary issue, the
proposal reserves the Department's right to request that the applicant
provide any of the information required pursuant to Sec. 2570.34(e)
and (f) at a time determined by the Department at its sole discretion.
The Department's ability to take action with respect to the fiduciary
is bolstered by this ability. The proposal's provision for access to
information assists the Department's ultimate disposition of the issue
and serves to ensure the exemption remains protective.
Lastly, the proposal would revise paragraph (c), which currently
permits the Department to revoke or modify an exemption under certain
circumstances and to give the modifications retroactive effect. The
proposal would delete the reservation of the Department's right to make
retroactive changes, and instead provide that changes would be
prospective only. The amendment reflects the Department's concern that
the ability to make retroactive changes undermines the legitimate
reliance interests of applicants, plans,
[[Page 14735]]
participants and beneficiaries in exemptions that have been granted
pursuant to specific conditions.
Section 2750.51
Section 2570.51 addresses public inspection and the provision of
copies of the administrative record. The proposal revises the current
language in coordination with Sec. 2570.32(d), which addresses the
administrative record and the information included in the
administrative record. The proposal clarifies that from the date the
administrative record is established, as determined by Sec.
2570.32(d), the administrative record is open to the public and
available to copy. In addition, the proposal updates paragraph (b) to
allow copies of the administrative record to be furnished
electronically at the staff's discretion.
Effective Date
The Department proposes to make this regulation effective 90 days
after the date of publication of the final rulemaking in the Federal
Register.
Regulatory Impact Analysis
Executive Order 12866
Under Executive Order 12866 (58 FR 51735), the Department must
determine whether a regulatory action is ``significant'' and therefore
subject to review by the Office of Management and Budget (OMB). Section
3(f) of the Executive order defines a ``significant regulatory action''
as an action that is likely to result in a rule (1) having an annual
effect on the economy of $100 million or more, or adversely and
materially affecting a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State,
local or tribal governments or communities (also referred to as
``economically significant''); (2) creating serious inconsistency or
otherwise interfering with an action taken or planned by another
agency; (3) materially altering the budgetary impacts of entitlement
grants, user fees, or loan programs or the rights and obligations of
recipients thereof; or (4) raising novel legal or policy issues arising
out of legal mandates, the President's priorities, or the principles
set forth in the Executive order.
Pursuant to the terms of Executive Order 12866, it has been
determined that this action is not ``significant'' within the meaning
of section 3(f) of the Executive order and therefore is not subject to
review by OMB.
Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department conducts a preclearance consultation program to
provide the general public and Federal agencies with an opportunity to
comment on proposed and continuing collections of information in
accordance with the Paperwork Reduction Act of 1995 (PRA 95) (44 U.S.C.
3506(c)(2)(A)). This program helps to ensure that the public
understands the Department's collection instructions, respondents can
provide the requested data in the desired format, the reporting burden
(time and financial resources) is minimized, and the Department can
properly assess the impact of collection requirements on respondents.
Currently, the Department is soliciting comments concerning the
information collection request (ICR) included in the proposed amendment
of the Exemption Procedure Regulation. A copy of the ICR may be
obtained by contacting the person listed in the PRA Addressee section
below. The Department has submitted a copy of the proposed rule to OMB
in accordance with 44 U.S.C. 3507(d) for review of its information
collections. The Department is particularly interested in comments
that:
(A) Evaluate whether the collection of information is necessary for
the proper performance of the functions of the agency, including
whether the information will have practical utility;
(B) Evaluate the accuracy of the agency's estimate of the burden of
the collection of information, including the validity of the
methodology and assumptions used;
(C) Enhance the quality, utility, and clarity of the information to
be collected; and
(D) Help minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., by
permitting electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, DC 20503; and marked ``Attention: Desk
Officer for the Employee Benefits Security Administration.'' Comments
can also be submitted by Fax: 202-395-5806 (this is not a toll-free
number), or by email: [email protected]. OMB requests that
comments be received by April 14, 2022, which is 30 days from
publication of the proposed amendment to ensure their consideration.
PRA Addressee: Address requests for copies of the ICR to James
Butikofer, Office of Research and Analysis, U.S. Department of Labor,
Employee Benefits Security Administration, 200 Constitution Avenue NW,
Room N- 5718, Washington, DC 20210 or by email at: [email protected].
These are not toll-free numbers. A copy of the ICR also may be obtained
at https://www.RegInfo.gov.
Background
Both ERISA and the Code contain various statutory exemptions from
the prohibited transaction rules. In addition, ERISA section 408(a)
authorizes the Secretary to grant administrative exemptions from the
restrictions of ERISA sections 406 and 407(a), while Code section
4975(c)(2) authorizes the Secretary of the Treasury or his delegate to
grant exemptions from the prohibitions of Code section 4975(c)(1).
ERISA section 408(a) and Code section 4975(c)(2) also direct the
Secretary and the Secretary of the Treasury, respectively, to establish
procedures to carry out the purposes of these sections.
Under ERISA section 3003(b), the Secretary and the Secretary of the
Treasury are directed to consult and coordinate with each other with
respect to the establishment of rules applicable to the granting of
exemptions from the prohibited transaction restrictions of ERISA and
the Code. Under ERISA section 3004, moreover, the Secretary and the
Secretary of the Treasury are authorized to develop jointly rules
appropriate for the efficient administration of ERISA.
Under section 102 of Reorganization Plan No. 4 of 1978, the
foregoing authority of the Secretary of the Treasury to issue
exemptions under Code section 4975 was transferred, with certain
enumerated exceptions not discussed herein, to the Secretary.
Accordingly, the Secretary now possesses the authority under Code
section 4975(c)(2), as well as under ERISA section 408(a), to issue
individual and class exemptions from the prohibited transaction rules
of ERISA and the Code.
On April 28, 1975, the Department published ERISA Procedure 75-1 in
the Federal Register (40 FR 18471). This procedure provided necessary
information to the affected public regarding the procedure to follow
when requesting an exemption. On August 10, 1990, the Department issued
its current exemption procedure regulation, which
[[Page 14736]]
replaced ERISA Procedure 75-1, for applications for prohibited
transaction exemptions filed on or after September 10, 1990. (29 CFR
2570.30 through 2570.52, 55 FR 32836, Aug. 10, 1990) Most recently, the
Department published an updated Exemption Procedure Regulation in 2011
(29 CFR 2570.30 through 2570.52 (2011)). The updated Exemption
Procedure Regulation revised the prohibited transaction exemption
procedure to reflect changes in the Department's exemption practices
since the previous exemption procedure was issued in 1990.
Under the current Exemption Procedure Regulation, the Department
requires information to be provided in a written application pursuant
to the requirements set forth in the Exemption Procedure Regulation.
The written application is an ICR for purposes of the PRA. Sections
2570.34 and 2570.35 of the current Exemption Procedure Regulation
describe the information that must be supplied by the applicant, such
as, but not limited to: Identifying information (name, type of plan,
EIN number, etc.); an estimate of the number of plan participants; a
detailed description of the exemption transaction and the parties for
which an exemption is requested; a statement regarding which section of
ERISA is thought to be violated and whether transaction(s) involved
have already been entered into; a statement of whether the transaction
is customary in the industry; a statement of the hardship or economic
loss, if any, which would result if the exemption were denied; and a
statement explaining why the proposed exemption would be
administratively feasible, in the interests of the plan and protective
of the rights of plan participants and beneficiaries. In addition, the
applicant must certify that the information supplied is accurate and
complete.
The proposed amendment to the Exemption Procedure Regulation would
expand the ICR contained in Sec. Sec. 2570.34 and 2570.35 in several
respects. First, the proposal seeks to expand the information sought
about the proposed exemption transaction, such as requiring a more
detailed description of the exemption transaction, including the
benefits derived by the parties and the costs and benefits to the plan;
alternative transactions considered; and descriptions of all conflicts
of interest and self-dealing. Second, the proposal requires the
inclusion of additional information in exemption applications such as a
statement regarding whether the exemption transaction is in the best
interest of the plan and its participant and beneficiaries and expanded
disclosures with respect to any Advisory Opinions that the applicant
requests with respect to any issue relating to the exemption
transaction and investigations by any Federal, state, or regulatory
body.
The proposal also would revise the ICR to expand the number of
specialized parties from whom statements and documents must be included
in exemption applications. The specialized parties covered by the
existing requirements would be expanded to include not just independent
appraisers and fiduciaries, but also auditors and accountants acting on
the behalf of the plan, and the documents required to be disclosed with
respect to those parties would expand to cover any documents submitted
by those parties in support of the application. Specialized parties
would be required to disclose, among other things, additional
information regarding their contracts, including, but not limited to,
information on indemnification provisions, waivers, and relationships
with other parties involved in the exemption transaction. In addition,
the qualified independent fiduciary would be required to provide more
information, such as, but not limited to: Information regarding
conflicts of interest and fiduciary liability insurance and whether the
fiduciary has been under investigation or convicted of certain crimes.
In addition to the requirements created by the application
described in Sec. Sec. 2570.34 and 2570.35, additional requirements
are added by amending Sec. 2570.34(d) with respect to a pre-submission
applicant. Specifically, if an applicant desires to engage in a pre-
submission conference or correspondence, the applicant or its
representative must (1) identify and fully describe the exemption
transaction; (2) identify the applicant, the applicable plan(s), and
the relevant parties to the exemption transaction; and (3) set forth
the prohibited transactions that the applicant believes are applicable.
Finally, the Department proposes to amend Sec. 2570.36 to provide
that the application and supporting documents may be submitted
electronically. The Department expects that no longer requiring paper
copies should reduce the burden associated with this ICR.
In order to assess the hour and cost burden of the revision to the
current ICR associated with the Exemption Procedure Regulation, the
Department updated its estimate of the number of exemption requests it
expects to receive and the hour and cost burden associated with
providing information required to be submitted by applicants, including
the new information required under this proposal. The Department also
adjusted its estimate of the labor rates for professional and clerical
help and the size of plans filing exemption requests with the
Department. In the revised estimate, the costs of hiring outside
service providers (such as, law firms specializing in ERISA, outside
appraisers, and financial experts) are accounted for as a cost burden.
Requirements related to these services are more explicitly specified in
the proposed rule than they were in the previous procedure, and any
paperwork costs associated with these requirements are built into the
estimated fees for outside services.
Annual Hour Burden
Between 2019 and 2021, the Department received an average of 22
requests annually for prohibited transaction exemptions. For purposes
of this analysis, the Department assumes that the Department will
receive approximately the same number of applications annually over the
next three years. The paperwork burden consists of the time outside
attorneys will spend to prepare and submit an exemption application,
and the time required to prepare and distribute the notice of a
proposed exemption to interested parties. Because notices are only
distributed once a proposed application for an exemption has been
published in the Federal Register, the Department estimates that four
applications annually will proceed to the notice stage based on the
number of notices published between 2019 and 2021.
An exemption application may be made either directly by plans or by
parties-in-interest to plans. The preparation of an application,
however, is generally conducted by, or under the direction of,
attorneys with specialized knowledge of employee benefit plans. The
Department assumes that these same attorneys will also prepare and
distribute the notice of the application to interested parties.
The Department estimates that, on average, 12 hours of in-house
legal professional and 13 hours of in-house clerical time will be spent
preparing the documentation for the application that will be used by
the outside counsel. The Department estimates that total labor costs
(wages plus benefits plus overhead) for legal staff would average
$140.96 per hour and $55.23 per hour for clerical staff.\5\ Therefore,
the
[[Page 14737]]
Department estimates that preparing the documentation for the
application would require 264 in-house legal professional hours (22
applications times 12 hours) and 286 clerical hours (22 applications
times 13 hours) resulting in 550 total hours at an equivalent cost of
approximately $53,009.6 7
---------------------------------------------------------------------------
\5\ The Department estimates of labor costs by occupation
reflect estimates of total compensation and overhead costs.
Estimates for total compensation are based on mean hourly wages by
occupation from the 2020 Occupational Employment Statistics and
estimates of wages and salaries as a percentage of total
compensation by occupation from the 2020 National Compensation
Survey's Employee Cost for Employee Compensation. Estimates for
overhead costs for services are imputed from the 2017 Service Annual
Survey. To estimate overhead cost on an occupational basis, the
Office of Research and Analysis allocates total industry overhead
cost to unique occupations using a matrix of detailed occupational
employment for each NAICS industry. All values are presented in 2020
dollars.
\6\ The 286 in-house clerical hours are estimated to cost
$15,796 and the 264 in-house legal professional hours are estimated
to cost $37,213. This totals to $53,009.
\7\ Any discrepancies in the calculations are a result of
rounding.
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An exemption application may be made either directly by plans or by
parties-in-interest to plans. The preparation of an exemption
application, however, generally is conducted by or under the direction
of attorneys with specialized knowledge of ERISA. The Department
assumes that these same attorneys will also prepare and distribute the
notice of the application to interested parties. As discussed above,
the Department proposes to revise the requirements for specialized
statements and documents. The specialized parties would be required to
disclose, among other things, additional information regarding their
contracts, including, but not limited to, information on
indemnification provisions, waivers, and relationships with other
parties involved in the exemption transaction.
Because of the large amount of paperwork that is submitted
(applications average approximately 100 pages with varying numbers of
supporting documents), and complexity of the issues, the Department
estimates that, on average, 52 hours of outside legal professional work
will be spent preparing the documentation for the application. The
Department requests comment on the accuracy of this assumption and
notes that there could be a large dispersion in the number of hours
required, based on the complexity of the application. Total labor costs
(wages plus benefits plus overhead) for outside legal staff was
estimated to average $494.00 per hour.\8\ Therefore, the Department
estimates that preparing the applications will require 1,144 in-house
legal professional hours (22 applications times 52 hours) with an
equivalent cost of $565,136. This estimate includes potential meetings
with Department personnel as well as preparation of supplementary
documents that are requested following some of these meetings. For some
of the more complex cases, the Department will request a Summary of
Proposed Exemption (SPE), which will involve a one page summary of the
rationale for the transaction.
---------------------------------------------------------------------------
\8\ The outside legal staff labor rate is a composite weighted
average of the Laffey Matrix for Wage Rates. (($381 x 0.4) + ($468 x
0.35) + ($676 x 0.15) + ($764 x 0.1) = $494). http://www.laffeymatrix.com/see.html.
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As discussed above, the Department proposes to make substantial
revisions to the requirements set forth in paragraphs (c) through (f)
regarding statements and documents about qualified independent
appraisers and qualified independent fiduciaries that are involved in
an exemption transaction. The changes relate to the revisions made to
the definitions of qualified independent appraiser and qualified
independent fiduciary in Sec. 2570.31. The Department assumes that an
outside qualified independent fiduciary and an outside appraiser/expert
will help prepare documentation for the application. Total labor costs
for outside fiduciary and outside appraiser were estimated to average
$291.23 per hour.\9\ Therefore, the Department estimates that preparing
the applications will require 748 hours of work by outside fiduciaries
(22 applications times 34 hours) and 308 hours of work by outside
appraisers/experts (22 times 14 hours) totaling approximately $307,539.
The new requirements contained in the proposal are incorporated into
these estimates.\10\
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\9\ The wage rate for the outside fiduciary and outside
appraiser, which was estimated as $250 in 2014, was adjusted for
inflation. The CPI in October 2014 was 237.433 (https://www.bls.gov/news.release/archives/cpi_11202014.pdf) and the CPI in October 2021
was 276.589 (https://www.bls.gov/news.release/pdf/cpi.pdf). Thus,
the percent change in the CPI from October 2014 to October 2021 is
estimated to be approximately 1.165 and therefore, the adjusted wage
rate is $291 ($250 x 1.165).
\10\ The 308 outside appraiser/expert hours are estimated to
cost $89,699 and the 748 outside fiduciary hours are estimated to
cost $217,840. This totals to $307,539.
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For applications that reach the stage of publication in the Federal
Register as pending approval, a notice must be prepared and distributed
to interested parties. The Department estimates that four applications
will be published annually and that approximately 3,480 notices to
interested parties will be distributed. The distribution of the notices
is estimated to require about 5 minutes of in-house clerical time per
interested party. Therefore, distribution of notices will require
approximately 290 hours at an equivalent cost of approximately $16,017
(5 minutes/60 minutes) times 3,480 notices times $55.23 hourly clerical
rate).
Proposed amendments to Sec. 2730.31(k) define a pre-submission
applicant and Sec. 2570.34(d) imposes requirements on the pre-
submission applicant. If an applicant desires to engage in a pre-
submission conference or correspondence, the applicant or its
representative must (1) identify and fully describe the exemption
transaction; (2) identify the applicant, the applicable plan(s), and
the relevant parties to the exemption transaction; and (3) set forth
the prohibited transactions that the applicant believes are applicable.
While the number of entities that would satisfy the definition of pre-
submission applicant is not tracked, most applicants do contact the
Department. Other entities that satisfy the definition of a pre-
submission applicant, but that do not end up submitting an application
also contact the Department. To account for these additional entities,
an estimate of 25 pre-submission applicants is used. The required
information is required on the application, so for those submitting an
application, the requirement does not create a new burden, but rather
only changes the timing of providing the information. For those five
entities that do not submit an application, an hour of an in-house
legal professional's time could be required. This creates an additional
five hours of burden with an equivalent cost of $705.\11\
---------------------------------------------------------------------------
\11\ (5 * $140.96) = $705.
---------------------------------------------------------------------------
The overall hour burden for this ICR is approximately 3,045 hours
at an equivalent cost of approximately $942,406.
Annual Cost Burden
The Department estimates that 3,480 notices to interested persons
will be sent, and that 2,784 of the notices (80 percent) will
distributed via first class mail with a material cost of $0.05 per page
and distribution costs of $0.58 per notice. This generates an estimated
cost of approximately $1,754. The Department further estimates that
approximately 522 (15 percent of the total number of notices) will be
distributed electronically and 174 (5 percent) will be distributed by
alternative means approved by the Department, for example in highly
visible area within a factory, at no cost. The Department notes that it
determines whether it is appropriate to distribute
[[Page 14738]]
notices by means other than mailing on a case-by-case basis and only
will allow a method to be used that ensures actual receipt based on the
demographics of the class of interested persons.
The Departments estimates that SPEs will be requested with respect
to approximately three submissions (15 percent of the 22 submissions)
per year, and that the SPEs with be sent with the notices. Based on an
average plan size of 696 participants per plan, this results in the
distribution of approximately 2,297 SPEs, of which approximately 1,837
(80 percent) will be mailed. The material cost associated with mailing
the 1,837 SPEs at $.05 per page is approximately $92. Therefore, the
total cost burden for distribution of the notices and SPEs is estimated
to be approximately $1,846 ($1,754 for the notices + $92 for the cost
of including the SPEs).
Overall, the cost burden associated with this ICR is approximately
$1,846.
The paperwork burden estimates are summarized as follows:
Agency: Employee Benefits Security Administration, Department of
Labor.
Title: Employee Retirement Income Security Act of 1974 Section
408(a) Prohibited Transaction Provisions Exemption Application
Procedure.
OMB Control Number: 1210-0060.
Affected Public: Businesses or other for-profits.
Type of Review: Revision.
Estimated Number of Respondents: 22.
Estimated Number of Annual Responses: 5,799.
Frequency of Response: Annual or as needed.
Estimated Total Annual Burden Hours: 3,045 hours.
Estimated Total Annual Burden Cost: $1,846.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless the head of an agency certifies that a proposed
rule is not likely to have a significant economic impact on a
substantial number of small entities, section 603 of the RFA requires
that the agency present an initial regulatory flexibility analysis at
the time of the publication of the notice of proposed rulemaking
describing the impact of the rule on small entities and seeking public
comment on such impact.
For purposes of the RFA, the Department continues to consider a
small entity to be an employee benefit plan with fewer than 100
participants.\12\ Further, while some large employers may have small
plans, in general small employers maintain most small plans. Thus, the
Department believes that assessing the impact of this proposed rule on
small plans is an appropriate substitute for evaluating the effect on
small entities. The definition of small entity considered appropriate
for this purpose differs, however, from a definition of small business
that is based on size standards promulgated by the Small Business
Administration (SBA) (13 CFR 121.201) pursuant to the Small Business
Act (15 U.S.C. 631 et seq.). The Department therefore requests comments
on the appropriateness of the size standard used in evaluating the
impact of this proposed rule on small entities.
---------------------------------------------------------------------------
\12\ The basis for this definition is found in ERISA section
104(a)(2), which permits the Secretary to prescribe simplified
annual reports for pension plans that cover fewer than 100
participants. Pursuant to the authority of ERISA section 104(a)(3),
the Department has previously issued at 29 CFR 2520.104-20,
2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-10 certain
simplified reporting provisions and limited exemptions from
reporting and disclosure requirements for small plans, including
unfunded or insured welfare plans covering fewer than 100
participants and satisfying certain other requirements.
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By this standard, the Department estimates that nearly half the
requests for exemptions would be from small plans. Thus, of the
approximately 639,751 ERISA-covered small plans, the Department
estimates that 20 small plans (.0031% of small plans) file prohibited
transaction exemption applications each year. The Department does not
consider this to be a substantial number of small entities. Therefore,
based on the foregoing, pursuant to section 605(b) of RFA, the
Assistant Secretary of the Employee Benefits Security Administration
hereby certifies that the proposed rule, if promulgated, will not have
a significant economic impact on a substantial number of small
entities. The Department invites comments on this certification and the
potential impact of the rule on small entities.
Congressional Review Act
The proposed rule being issued here will, when finalized, be
subject to the provisions of the Congressional Review Act provisions of
the Small Business Regulatory Enforcement Fairness Act of 1996 (5
U.S.C. 801 et seq.) and will be transmitted to Congress and the
Comptroller General for review.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), the proposed rule does not include any Federal mandate that may
result in expenditures by State, local, or tribal governments, or
impose an annual burden exceeding $100 million or more, adjusted for
inflation, on the private sector.
Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires Federal agencies to adhere to
specific criteria in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, or the relationship between the National Government and the
States, or on the distribution of power and responsibilities among the
various levels of government. This proposed rule does not have
federalism implications, because it has no substantial direct effect on
the States, on the relationship between the National Government and the
States, or on the distribution of power and responsibilities among the
various levels of government. ERISA section 514 provides, with certain
exceptions specifically enumerated, that the provisions of Titles I and
IV of ERISA supersede any and all laws of the States as they relate to
any employee benefit plan covered under ERISA. The requirements
implemented in the rule do not alter the fundamental provisions of the
statute with respect to employee benefit plans, and as such would have
no implications for the States or the relationship or distribution of
power between the National Government and the States.
List of Subjects in 29 CFR Part 2570
Administrative practice and procedure, Employee benefit plans,
Employee Retirement Income Security Act, Federal Employees' Retirement
System Act, Exemptions, Fiduciaries, Party in interest, Pensions,
Prohibited transactions, Trusts and trustees.
For the reasons set forth in the preamble, the Department proposes
to amend subchapter G, part 2570 of chapter XXV of title 29 of the Code
of Federal Regulations as follows:
[[Page 14739]]
PART 2570--PROCEDURAL REGULATIONS UNDER THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT
0
1. The authority citation for part 2570 continues to read as follows:
Authority: 5 U.S.C. 8477; 29 U.S.C. 1002(40), 1021, 1108, 1132,
and 1135; sec. 102, Reorganization Plan No. 4 of 1978, 5 U.S.C. App
at 672 (2006); Secretary of Labor's Order 3-2010, 75 FR 55354
(September 10, 2010).
Subpart I is also issued under 29 U.S.C. 1132(c)(8).
0
2. Revise subpart B to read as follows:
Subpart B--Procedures Governing the Filing and Processing of Prohibited
Transaction Exemption Applications
Sec.
2570.30 Scope of this subpart.
2570.31 Definitions.
2570.32 Persons who may apply for exemptions and the administrative
record.
2570.33 Applications the Department will not ordinarily consider.
2570.34 Information to be included in every exemption application.
2570.35 Information to be included in applications for individual
exemptions only.
2570.36 Where to file an application.
2570.37 Duty to amend and supplement exemption applications.
2570.38 Tentative denial letters.
2570.39 Opportunities to submit additional information.
2570.40 Conferences.
2570.41 Final denial letters.
2570.42 Notice of proposed exemption.
2570.43 Notification of interested persons by applicant.
2570.44 Withdrawal of exemption applications.
2570.45 Requests for reconsideration.
2570.46 Hearings in opposition to exemptions from restrictions on
fiduciary self-dealing and conflicts of interest.
2570.47 Other hearings.
2570.48 Decision to grant exemptions.
2570.49 Limits on the effect of exemptions.
2570.50 Revocation or modification of exemptions.
2570.51 Public inspection and copies.
2570.52 Effective date.
Subpart B--Procedures Governing the Filing and Processing of
Prohibited Transaction Exemption Applications
Sec. 2570.30 Scope of this subpart.
(a) The rules of procedure set forth in this subpart apply to
applications for prohibited transaction exemptions issued by the
Department under the authority of:
(1) Section 408(a) of the Employee Retirement Income Security Act
of 1974 (ERISA);
(2) Section 4975(c)(2) of the Internal Revenue Code of 1986 (the
Code); or
Note 1 to paragraph (a)(2). See H.R. Rep. No. 1280, 93d Cong.,
2d Sess. 310 (1974), and also section 102 of Presidential
Reorganization Plan No. 4 of 1978 (3 CFR, 1978 Comp., p. 332,
reprinted in 5 U.S.C. app. at 672 (2006), and in 92 Stat. 3790
(1978)), effective December 31, 1978, which generally transferred
the authority of the Secretary of the Treasury to issue
administrative exemptions under section 4975(c)(2) of the Code to
the Department.
(3) The Federal Employees' Retirement System Act of 1986 (FERSA) (5
U.S.C. 8477(c)(3)).
(b) Under the rules of procedure in this subpart, the Department
may conditionally or unconditionally exempt any fiduciary or
transaction, or class of fiduciaries or transactions, from all or part
of the restrictions imposed by ERISA section 406 and the corresponding
restrictions of the Code and FERSA. While administrative exemptions
granted under the rules in this subpart are ordinarily prospective in
nature, it is possible that an applicant may obtain retroactive relief
for past prohibited transactions if, among other things, the Department
determines that appropriate safeguards were in place at the time the
transaction was consummated, and no plan participants or beneficiaries
were harmed by the transaction.
(c) The rules in this subpart govern the filing and processing of
applications for both individual and class exemptions that the
Department may propose and grant pursuant to the authorities cited in
paragraph (a) of this section. The Department may also propose and
grant exemptions on its own motion, in which case the procedures
relating to publication of notices, hearings, evaluation, and public
inspection of the administrative record, and modification or revocation
of previously granted exemptions will apply.
(d) The issuance of an administrative exemption by the Department
under the procedural rules in this subpart does not relieve a fiduciary
or other party in interest or disqualified person with respect to a
plan from the obligation to comply with certain other provisions of
ERISA, the Code, or FERSA, including any prohibited transaction
provisions to which the exemption does not apply, and the general
fiduciary responsibility provisions of ERISA, if applicable, which
require, among other things, that a fiduciary discharge his or her
duties respecting the plan solely in the interests of the participants
and beneficiaries of the plan and in a prudent fashion; nor does it
affect the requirement of Code section 401(a) that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries.
(e) The Department will not propose or issue exemptions upon oral
request alone, nor will the Department grant exemptions orally. An
applicant for an administrative exemption may request and receive oral
feedback from Department employees in preparing an exemption
application, which will not be binding on the Department in its
processing of an exemption application or in its examination or audit
of a plan. Such feedback will become part of the administrative record
as set forth in Sec. 2570.32(c).
(f) The Department will generally treat any exemption application
that is filed solely under ERISA section 408(a) or solely under Code
section 4975(c)(2) as an exemption request filed under both ERISA
section 408(a) and Code section 4975(c)(2) if it relates to a plan that
is subject to both ERISA and the Code and the transaction would be
prohibited both by ERISA and the corresponding provisions of the Code.
(g) The Department's issuance of an administrative exemption is at
its sole discretion based on the statutory criteria set forth in ERISA
section 408(a) and Code section 4975(c)(2). The existence of previously
issued administrative exemptions is not determinative of whether future
exemption applications with the same or similar facts will be proposed,
or whether a proposed exemption will contain the same conditions as a
previously issued administrative exemption.
Sec. 2570.31 Definitions.
For purposes of the procedures in this subpart, the following
definitions apply:
(a) An affiliate of a person means--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person. For purposes of this paragraph (a)(1), the term
``control'' means the power to exercise a controlling influence over
the management or policies of a person other than an individual;
(2) Any officer, director, partner, employee, or relative (as
defined in ERISA section 3(15)) of any such person; or
(3) Any corporation, partnership, trust, or unincorporated
enterprise of which such person is an officer, director, partner, or
five percent or more owner.
(b) A class exemption is an administrative exemption, granted under
ERISA section 408(a), Code section 4975(c)(2), and/or 5 U.S.C.
8477(c)(3), which applies to any
[[Page 14740]]
transaction and party in interest within the class of transactions and
parties in interest specified in the exemption when the conditions of
the exemption are satisfied.
(c) Department means the U.S. Department of Labor and includes the
Secretary of Labor or his or her delegate exercising authority with
respect to prohibited transaction exemptions to which this subpart
applies.
(d) Exemption transaction means the transaction or transactions for
which an exemption is requested.
(e) An individual exemption is an administrative exemption, granted
under ERISA section 408(a), Code section 4975(c)(2), and/or 5 U.S.C.
8477(c)(3), which applies only to the specific parties in interest and
transactions named or otherwise defined in the exemption.
(f) A party in interest means a person described in ERISA section
3(14) or 5 U.S.C. 8477(a)(4) and includes a disqualified person, as
defined in Code section 4975(e)(2).
(g) Pooled fund means an account or fund for the collective
investment of the assets of two or more unrelated plans, including (but
not limited to) a pooled separate account maintained by an insurance
company and a common or collective trust fund maintained by a bank or
similar financial institution.
(h) A qualified appraisal report is any appraisal report that:
(1) Is prepared solely on behalf of the plan by a qualified
independent appraiser; and
(2) Satisfies all of the requirements set forth in Sec.
2570.34(c)(4).
(i) A qualified independent appraiser is any individual or entity
with appropriate training, experience, and facilities to provide a
qualified appraisal report on behalf of the plan regarding the
particular asset or property appraised in the report, that is
independent of and unrelated to:
(1) Any party involved in the exemption transaction (as defined in
paragaph (l) of this section); and
(2) The qualified independent fiduciary, if one is present with
respect to the exemption transaction; in general, the determination as
to the independence of the appraiser is made by the Department on the
basis of all relevant facts and circumstances. In making this
determination, the Department will take into account the amount of the
appraiser's revenues and projected revenues for the current Federal
income tax year (including amounts received for preparing the appraisal
report) that will be derived from parties involved in the exemption
transaction relative to the appraiser's revenues from all sources for
the appraiser's prior Federal income tax year and the appraiser's
projected revenue for the current Federal income tax year as well as
the appraiser's related business interests. An appraiser will not be
treated as independent if the revenues it receives or is projected to
receive, within the current Federal income tax year, from parties
involved in the exemption transaction are more than two percent of such
appraiser's annual revenues from all sources based upon either its
prior Federal income tax year or the appraiser's projected revenues for
the current Federal income tax year, unless, in its sole discretion,
the Department determines otherwise.
(j) A qualified independent fiduciary is any individual or entity
with appropriate training, experience, and facilities to act on behalf
of the plan regarding the exemption transaction in accordance with the
fiduciary duties and responsibilities prescribed by ERISA, that is
independent of and unrelated to: Any party involved in the exemption
transaction (as defined in paragraph (l) of this section) and any other
party involved in the development of the exemption request. In general,
the determination as to the independence of a fiduciary will be made by
the Department on the basis of all relevant facts and circumstances.
Among other things, the Department will consider whether the fiduciary
has an interest in the subject transaction or future transactions of
the same nature or type. In making this determination, the Department
will also take into account, among other things, the amount of both the
fiduciary's revenues and projected revenues for the current Federal
income tax year (including amounts received for preparing fiduciary
reports) that will be derived from parties involved in the exemption
transaction relative to the fiduciary's revenues from all sources for
the prior Federal income tax year or the fiduciary's projected revenues
from all sources for the current Federal income tax year. A fiduciary
will not be treated as independent if the revenues it receives or is
projected to receive, within the current Federal income tax year, from
parties (and their affiliates) involved in the exemption transaction
are more than two percent of either the fiduciary's annual revenues
from all sources based upon its prior Federal income tax year or the
fiduciary's projected revenue for the current Federal income tax year,
unless, in its sole discretion, the Department determines otherwise.
(k) A pre-submission applicant is a party that contacts the
Department, either orally or in writing, to inquire whether a party
with a particular fact pattern would need to submit an exemption
application and, if so, what conditions and relief would be applicable.
A party that contacts the Department to inquire broadly, without
reference to a specific fact pattern, about prohibited transaction
exemptions is not a pre-submission applicant.
(l) A party involved in the exemption transaction includes:
(1) A party in interest (as defined in paragraph (f) of this
section);
(2) Any party that is engaged in the exemption transaction or an
affiliate of the party that is engaged in the exemption transaction;
and
(3) Any party providing services to either the plan or a party
described in paragraph (1)(1) or (2) of this section with respect to
the exemption transaction or its affiliates.
Sec. 2570.32 Persons who may apply for exemptions and the
administrative record.
(a) The persons who may apply for exemptions are as follows:
(1) Any party in interest to a plan who is or may be a party to the
exemption transaction;
(2) Any plan which is a party to the exemption transaction; or
(3) In the case of an application for an exemption covering a class
of parties in interest or a class of transactions, in addition to any
person described in paragraphs (a)(1) and (2) of this section, an
association or organization representing parties in interest who may be
parties to the exemption transaction.
(b) An application by or for a person described in paragraph (a) of
this section may be submitted by the applicant or by an authorized
representative. An application submitted by an authorized
representative of the applicant must include proof of authority in the
form of:
(1) A power of attorney; or
(2) A written certification from the applicant that the
representative is authorized to file the application.
(c) If the authorized representative of an applicant submits an
application for an exemption to the Department together with proof of
authority to file the application as required by paragraph (b) of this
section, the Department will direct all correspondence and inquiries
concerning the application to the representative unless requested to do
otherwise by the applicant.
(d)(1) The administrative record is open for public inspection,
pursuant to Sec. 2570.51(a), from the date an applicant or pre-
submission applicant provides any information or documentation to the
Office of Exemption Determinations.
[[Page 14741]]
(2) The administrative record includes, but is not limited to: Any
documents submitted to, and accepted by, the Department before the
initial application, whether provided in writing by the applicant or
pre-submission applicant or as notes taken at a pre-submission
conference; the initial exemption application and any modifications or
supplements to the application; all correspondence with the applicant
or pre-submission applicant, whether before or after the applicant's
submission of the exemption application; and any supporting information
provided by the applicant or pre-submission applicant, whether provided
orally or in writing (as well as any comments and testimony received by
the Department in connection with an application).
(3) If documents are required to be provided in writing, by either
the applicant or the Department, the documents may be provided either
by mail or electronically, unless otherwise indicated by the Department
at its sole discretion.
Sec. 2570.33 Applications the Department will not ordinarily
consider.
(a) The Department ordinarily will not consider:
(1) An application that fails to include all the information
required by Sec. Sec. 2570.34 and 2570.35 (or fails to include current
information) or otherwise fails to conform to the requirements in this
subpart; or
(2) An application involving a transaction or transactions which
are the subject of an investigation for possible violations of ERISA,
the Code, FERSA, or any other Federal or state law; or an application
involving a party in interest who is the subject of such an
investigation or who is a defendant in an action by the Department, the
Internal Revenue Service, or any other regulatory entity to enforce
ERISA, the Code, FERSA, or any other Federal or state laws.
(b) An application for an individual exemption relating to a
specific transaction or transactions ordinarily will not be considered
if the Department has under consideration a class exemption relating to
the same type of transaction or transactions. Notwithstanding the
foregoing, the Department may consider such an application if the
issuance of the final class exemption may not be imminent, and the
Department determines that time constraints necessitate consideration
of the transaction on an individual basis.
(c) If a party, excluding a Federal, state, or other governmental
entity, designates as confidential any information submitted in
connection with its exemption request, the Department will not process
the application unless and until the applicant withdraws its claim of
confidentiality. By submitting an exemption application, an applicant
consents to public disclosure, pursuant to Sec. 2570.51, of the entire
administrative record.
(d) The Department will not engage a pre-submission applicant or
its representative, whether through written correspondence or a
conference, if the pre-submission applicant does not:
(1) Identify and fully describe the exemption transaction;
(2) Identify the applicant, the applicable plan(s), and the
relevant parties to the exemption transaction; and
(3) Set forth the prohibited transactions that the applicant
believes are applicable.
Sec. 2570.34 Information to be included in every exemption
application.
(a) All applications for exemptions must contain the following
information:
(1) The name(s), address(es), phone number(s), and email
address(es) of the applicant(s);
(2) A detailed description of the exemption transaction, including
the identification of all the parties involved in the exemption
transaction, a description of any larger integrated transaction of
which the exemption transaction is a part, and a chronology of the
events leading up to the transaction;
(3) The identity, address, phone number, and email address of any
representatives for the affected plan(s) and parties in interest and
what individuals or entities they represent;
(4) A description of:
(i) The reason(s) for engaging in the exemption transaction;
(ii) Any material benefit that may be received by a party involved
in the exemption transaction as a result of the subject transaction
(including the avoidance of any materially adverse outcome by a party
as a result of engaging in the exemption transaction); and
(iii) The costs and benefits of the exemption transaction to the
affected plan(s), participants, and beneficiaries, including
quantification of those costs and benefits to the extent possible;
(5) A detailed description of the alternatives to the exemption
transaction that did not involve a prohibited transaction and why those
alternatives were not pursued;
(6) The prohibited transaction provisions from which exemptive
relief is requested and the reason why the exemption transaction would
violate each such provision;
(7) A description of each conflict of interest or potential
instance of self-dealing that would be permitted if the exemption is
granted;
(8) Whether the exemption transaction is or has been the subject of
an investigation or enforcement action by the Department, the Internal
Revenue Service, or any other regulatory authority; and
(9) The hardship or economic loss, if any, which would result to
the person or persons on behalf of whom the exemption is sought, to
affected plans, and to their participants and beneficiaries from denial
of the exemption.
(10) With respect to the exemption transaction's definition of
affiliate, if applicable, either a statement that the definition of
affiliate set forth in Sec. 2570.31(a) is applicable or a statement
setting forth why a different affiliate definition should be applied.
(b) All applications for exemption must also contain the following:
(1) A statement explaining why the requested exemption would meet
the requirements of ERISA section 408(a) by being--
(i) Administratively feasible for the Department;
(ii) In the interests of affected plans and their participants and
beneficiaries; and
(iii) Protective of the rights of participants and beneficiaries of
affected plans.
(2) A statement that the exemption transaction either:
(i)(A) Will be in the best interest of the plan and its
participants and beneficiaries;
(B) That all compensation received, directly or indirectly, by a
party involved in the exemption transaction does not exceed reasonable
compensation within the meaning of ERISA section 408(b)(2) and Code
section 4975(d)(2); and
(C) That all of the statements to the Department, the plan, or, if
applicable, the qualified independent fiduciary or qualified
independent appraiser about the exemption transaction and other
relevant matters are not, at the time the statements are made,
materially misleading; or
(ii) Why the exemption standards in paragrpahs (b)(2)(i)(A) through
(C) of this section should not be applicable to the exemption
transaction.
(iii) For purposes of this paragraph (b)(2), an exemption
transaction is in the best interest of a plan if the plan fiduciary
causing the plan to enter into
[[Page 14742]]
the transaction determines, with the care, skill, prudence, and
diligence under the circumstances then prevailing, that a prudent
person acting in a like capacity and familiar with such matters would,
in the conduct of an enterprise of a like character and with like aims,
enter into the exemption transaction based on the circumstances and
needs of the plan. Such fiduciary shall not place the financial or
other interests of itself, a party to the exemption transaction, or any
affiliate ahead of the interests of the plan, or subordinate the plan's
interests to any party or affiliate.
(3) With respect to the notification of interested persons required
by Sec. 2570.43:
(i) A description of the interested persons to whom the applicant
intends to provide notice;
(ii) The manner in which the applicant will provide such notice;
and
(iii) An estimate of the time the applicant will need to furnish
notice to all interested persons following publication of a notice of
the proposed exemption in the Federal Register.
(4) If any party to the exemption transaction has requested either
an advisory opinion from the Department or any similar opinion or
guidance from another Federal, state, or regulatory body with respect
to any issue relating to the exemption transaction--
(i) A copy of the opinion, letter, or similar document concluding
the Department's or other entity's action on the request; or
(ii) If the Department or other entity has not yet concluded its
action on the request:
(A) A copy of the request or the date on which it was submitted
and, solely with respect to an advisory opinion request to the
Department, the Department's correspondence control number as indicated
in the acknowledgment letter; and
(B) An explanation of the effect of the issuance of an advisory
opinion by the Department or similar opinion or guidance from another
Federal, state, or regulatory body would have upon the exemption
transaction.
(5) If the application is to be signed by anyone other than the
party in interest seeking exemptive relief on his or her own behalf, a
statement which--
(i) Identifies the individual signing the application and his or
her position or title; and
(ii) Explains briefly the basis of his or her familiarity with the
matters discussed in the application.
(6)(i) A declaration in the following form:
Under penalty of perjury, I declare that I am familiar with the
matters discussed in this application and, to the best of my
knowledge and belief, the representations made in this application
are true and correct.
(ii) This declaration must be dated and signed by:
(A) The applicant, in its individual capacity, in the case of an
individual party in interest seeking exemptive relief on his or her own
behalf;
(B) A corporate officer or partner where the applicant is a
corporation or partnership;
(C) A designated officer or official where the applicant is an
association, organization or other unincorporated enterprise; or
(D) The plan fiduciary that has the authority, responsibility, and
control with respect to the exemption transaction where the applicant
is a plan.
(c) Statements and documents from a qualified independent
appraiser, auditor, or accountant acting solely on behalf of the plan,
such as appraisal reports, analyses of market conditions, audits, or
financial documents submitted to support an application for exemption
must be accompanied by a statement of consent from such appraiser,
auditor, or accountant acknowledging that the statement is being
submitted to the Department as part of an application for exemption.
Such statements by the qualified independent appraiser, auditor, or
accountant must also contain the following written information:
(1) A signed and dated declaration under penalty of perjury that,
to the best of the qualified independent appraiser's, auditor's, or
accountant's knowledge and belief, all of the representations made in
such statement are true and correct;
(2) A copy of the qualified independent appraiser's, auditor's, or
accountant's engagement letter and, if applicable, contract with the
plan describing the specific duties the appraiser, auditor, or
accountant shall undertake. The letter or contract may not:
(i) Include any provision that provides for the direct or indirect
indemnification or reimbursement of the independent appraiser, auditor,
or accountant by the plan or another party for any failure to adhere to
its contractual obligations or to Federal and state laws applicable to
the appraiser's, auditor's, or accountant's work; or
(ii) Waive any rights, claims or remedies of the plan or its
participants and beneficiaries under ERISA, the Code, or other Federal
and state laws against the independent appraiser, auditor, or
accountant with respect to the exemption transaction;
(3) A summary of the qualified independent appraiser's, auditor's,
or accountant's qualifications to serve in such capacity;
(4) A detailed description of any relationship that the qualified
independent appraiser, auditor, or accountant has had or may have with
the plan or any party involved in the exemption transaction, or with
any party or its affiliates involved in the development of the
exemption request that may influence the appraiser, auditor, or
accountant, including a description of any past engagements with the
appraiser, auditor, or accountant;
(5) A written appraisal report prepared by the qualified
independent appraiser, acting solely on behalf of the plan, rather
than, for example, on behalf of the plan sponsor, must satisfy the
following requirements:
(i) The report must describe the method(s) used in determining the
fair market value of the subject asset(s) and an explanation of why
such method best reflects the fair market value of the asset(s);
(ii) The report must take into account any special benefit that a
party involved in the exemption transaction may derive from control of
the asset(s), such as from owning an adjacent parcel of real property
or gaining voting control over a company; and
(iii) The report must be current and not more than one year old
from the date of the transaction, and there must be a written update by
the qualified independent appraiser affirming the accuracy of the
appraisal as of the date of the transaction;
(6) If the subject of the appraisal report is real property, the
qualified independent appraiser shall submit a written representation
that he or she is a member of a professional organization of appraisers
that can sanction its members for misconduct;
(7) If the subject of the appraisal report is an asset other than
real property, the qualified independent appraiser shall submit a
written representation describing the appraiser's prior experience in
valuing assets of the same type; and
(8) The qualified independent appraiser shall submit a written
representation disclosing the percentage of its current revenue that is
derived from any party involved in the exemption transaction with
respect to both the prior Federal income tax year and current Federal
income tax year; in general, such percentage shall be computed with
respect to the two
[[Page 14743]]
separate disclosures by comparing, in fractional form:
(i) The amount of the appraiser's projected revenues from the
current Federal income tax year (including amounts received from
preparing the appraisal report) that will be derived from the parties
involved in the exemption transaction (expressed as a numerator); and
(ii) The appraiser's revenues from all sources for the prior
Federal income tax year (expressed as a denominator) or the appraiser's
projected revenues from all sources for the current Federal income tax
year (expressed as a denominator).
(d) For those exemption transactions requiring the retention of a
qualified independent appraiser, the applicant must include:
(1) A statement describing the process by which the independent
appraiser was selected, including the due diligence performed, the
potential independent appraiser candidates reviewed, and the references
contacted; and
(2) A statement that the independent appraiser has appropriate
technical training and proficiency with respect to the specific details
of the exemption transaction.
(e) For those exemption transactions requiring the retention of a
qualified independent fiduciary to represent the interest of the plan,
the applicant must include:
(1) A statement describing the process by which the independent
fiduciary was selected, including the due diligence performed, the
potential independent fiduciary candidates reviewed, and the references
contacted; and
(2) A statement that the independent fiduciary has appropriate
technical training and proficiency with respect to:
(i) ERISA and the Code; and
(ii) The specific details of the exemption transaction.
(f) For exemption transactions requiring the retention of a
qualified independent fiduciary to represent the interests of the plan,
a statement must be submitted by the independent fiduciary that
contains the following written information:
(1) A signed and dated declaration under penalty of perjury that,
to the best of the qualified independent fiduciary's knowledge and
belief, all of the representations made in such statement are true and
correct;
(2) A copy of the qualified independent fiduciary's engagement
letter and, if applicable, contract with the plan describing the
fiduciary's specific duties. The letter or contract may not:
(i) Contain any provisions that violates ERISA section 410;
(ii) Include any provision that provides for the direct or indirect
indemnification or reimbursement of the independent fiduciary by the
plan or other party for any failure to adhere to its contractual
obligations or to state or Federal laws applicable to the independent
fiduciary's work; or
(iii) Waive any rights, claims, or remedies of the plan under
ERISA, state, or Federal law against the independent fiduciary with
respect to the exemption transaction;
(3)(i) A statement that the independent fiduciary maintains
fiduciary liability insurance in an amount that is sufficient to
indemnify the plan for damages resulting from a breach by the
independent fiduciary of either:
(A) ERISA, the Code, or any other Federal or state law; or
(B) Its contract or engagement letter.
(ii) The insurance may not contain an exclusion for actions brought
by the Secretary or any other Federal, state, or regulatory body; the
plan; or plan participants or beneficiaries;
(4) An explanation of the bases for the conclusion that the
fiduciary is a qualified independent fiduciary, which also must include
a summary of that person's qualifications to serve in such capacity, as
well as a description of any prior experience by that person or other
demonstrated characteristics of the fiduciary (such as special areas of
expertise) that render that person or entity suitable to perform its
duties on behalf of the plan with respect to the exemption transaction;
(5) A detailed description of any relationship that the qualified
independent fiduciary has had or may have with a party involved in the
exemption transaction;
(6) An acknowledgement by the qualified independent fiduciary that
it understands its duties and responsibilities under ERISA; is acting
as a fiduciary of the plan with respect to the exemption transaction;
has no material conflicts of interest with respect to the exemption
transaction; and is not acting as an agent or representative of the
plan sponsor;
(7) The qualified independent fiduciary's opinion on whether the
exemption transaction would be in the interests of the plan and its
participants and beneficiaries, protective of the rights of
participants and beneficiaries of the plan, and in compliance with the
standards set forth in paragraphs (b)(2)(i)(A) through (C) of this
section, if applicable, along with a statement of the reasons on which
the opinion is based;
(8) Where the exemption transaction is continuing in nature, a
declaration by the qualified independent fiduciary that it is
authorized to take all appropriate actions to safeguard the interests
of the plan, and will, during the pendency of the transaction:
(i) Monitor the exemption transaction on behalf of the plan and its
participants and beneficiaries on a continuing basis;
(ii) Ensure that the exemption transaction remains in the interests
of the plan and its participants and beneficiaries and, if not, take
any appropriate actions available under the particular circumstances;
and
(iii) Enforce compliance with all conditions and obligations
imposed on any party dealing with the plan with respect to the
transaction;
(9) The qualified independent fiduciary shall submit a written
representation disclosing the percentage of the independent fiduciary's
current revenue that is derived from any party involved in the
exemption transaction with respect to both the prior Federal income tax
year and current Federal income tax year; in general, such percentage
shall be computed with respect to the two disclosures by comparing in
fractional form:
(i) The amount of the independent fiduciary's projected revenues
from the current Federal income tax year that will be derived from the
parties involved in the transaction (expressed as a numerator); and
(ii) The independent fiduciary's revenues from all sources
(excluding fixed, non-discretionary retirement income) for the prior
Federal income tax year (expressed as a denominator) and the
independent fiduciary's projected revenue from all sources (excluding
fixed, non-discretionary retirement income) for the current Federal
income tax year (expressed as a denominator);
(10) A statement that the independent fiduciary has no conflicts of
interest with respect to the exemption transaction that could affect
the exercise of its best judgment as a fiduciary;
(11) Either:
(i) A statement that, within the last five years, the independent
fiduciary has not been under investigation or examination by, and has
not engaged in litigation, or a continuing controversy with, the
Department, the Internal Revenue Service, the Justice Department, the
Pension Benefit Guaranty Corporation, the Federal Retirement Thrift
Investment Board, or any other Federal or state entity involving
compliance with provisions of ERISA, the Code, FERSA, or other Federal
or state law; or
[[Page 14744]]
(ii) A statement describing the applicable investigation,
examination, litigation or controversy; and
(12)(i) Either a statement that, within the last 13 years, the
independent fiduciary has not been either convicted or released from
imprisonment, whichever is later, as a result of:
(A) Any felony involving abuse or misuse of such person's position
or employment with an employee benefit plan or a labor organization;
any felony arising out of the conduct of the business of a broker,
dealer, investment adviser, bank, insurance company, or fiduciary;
income tax evasion; any felony involving the larceny, theft, robbery,
extortion, forgery, counterfeiting, fraudulent concealment,
embezzlement, fraudulent conversion, or misappropriation of funds or
securities; conspiracy or attempt to commit any such crimes or a crime
of which any of the foregoing crimes is an element; or any crime
described in ERISA section 411; or
(B) Convicted by a foreign court of competent jurisdiction or
released from imprisonment, whichever is later, as a result of any
crime, however denominated by the laws of the relevant foreign
government, that is substantially equivalent to an offense described
in:
(1) And a description of the circumstances of any such conviction;
or
(2) A statement describing a conviction or release from
imprisonment described in paragraph (f)(12)(i)(A) of this section or
this paragrpah (f)(12)(i)(B).
(ii) For purposes of this paragraph (f), a person shall be deemed
to have been ``convicted'' from the date of the judgment of the trial
court, regardless of whether that judgment remains under appeal; and
regardless of whether the foreign jurisdiction considers a trial court
judgment final while under appeal.
(g) Statements, as applicable, from other third-party experts,
including but not limited to economists or market specialists,
submitted on behalf of the plan to support an exemption application
must be accompanied by a statement of consent from such expert
acknowledging that the statement prepared on behalf of the plan is
being submitted to the Department as part of an exemption application.
Such statements must also contain the following written information:
(1) A copy of the expert's engagement letter and, if applicable,
contract with the plan describing the specific duties the expert will
undertake;
(2) A summary of the expert's qualifications to serve in such
capacity; and
(3) A detailed description of any relationship that the expert has
had or may have with any party involved in the exemption transaction
that may influence the actions of the expert.
(h) An application for exemption may also include a draft of the
requested exemption which describes the transaction and parties in
interest for which exemptive relief is sought and the specific
conditions under which the exemption would apply.
Sec. 2570.35 Information to be included in applications for
individual exemptions only.
(a) Except as provided in paragraph (c) of this section, every
application for an individual exemption must include, in addition to
the information specified in Sec. 2570.34, the following information:
(1) The name, address, email address, telephone number, and type of
plan or plans to which the requested exemption applies;
(2) The Employer Identification Number (EIN) and the plan number
(PN) used by such plan or plans in all reporting and disclosure
required by the Department (individuals should not submit Social
Security numbers);
(3) Whether any plan or trust affected by the requested exemption
has ever been found by the Department, the Internal Revenue Service, or
by a court to have violated the exclusive benefit rule of Code section
401(a), Code section 4975(c)(1), ERISA sections 406 or 407(a), or 5
U.S.C. 8477(c)(3), including a description of the circumstances
surrounding such violation;
(4) Whether any relief under ERISA section 408(a), Code section
4975(c)(2), or 5 U.S.C. 8477(c)(3) has been requested by, or provided
to, the applicant or any of the parties involved in the exemption
transaction and, if so, the exemption application number or the
prohibited transaction exemption number;
(5) Whether the applicant or any of the parties involved in the
exemption transaction are currently, or have been within the last five
years, defendants in any lawsuits or criminal actions concerning their
conduct as a fiduciary or party in interest with respect to any plan
(other than lawsuits with respect to a routine claim for benefits), and
a description of the circumstances of the lawsuits or criminal actions;
(6)(i) Whether the applicant (including any person described in
Sec. 2570.34(b)(6)(ii)) or any of the parties involved in the
exemption transaction has, within the last 13 years, been either
convicted or released from imprisonment, whichever is later, as a
result of:
(A) Any felony involving abuse or misuse of such person's position
or employment with an employee benefit plan or a labor organization;
any felony arising out of the conduct of the business of a broker,
dealer, investment adviser, bank, insurance company, or fiduciary;
income tax evasion; any felony involving the larceny, theft, robbery,
extortion, forgery, counterfeiting, fraudulent concealment,
embezzlement, fraudulent conversion, or misappropriation of funds or
securities; conspiracy or attempt to commit any such crimes or a crime
of which any of the foregoing crimes is an element; or any crime
described in ERISA section 411; or
(B) Convicted by a foreign court of competent jurisdiction or
released from imprisonment, whichever is later, as a result of any
crime, however denominated by the laws of the relevant foreign
government, that is substantially equivalent to an offense described in
paragraph (a)(6)(i)(A) of this section and a description of the
circumstances of any such conviction in paragraph (a)(6)(i)(A) of this
section or this paragraph (a)(6)(i)(B).
(ii) For purposes of this paragraph (a), a person shall be deemed
to have been ``convicted'' from the date of the judgment of the trial
court, regardless of whether that judgment remains under appeal and
regardless of whether the foreign jurisdiction considers a trial court
judgment final while under appeal;
(7) Whether, within the last five years, any plan affected by the
exemption transaction, or any party involved in the exemption
transaction, has been under investigation or examination by, or has
been engaged in litigation or a continuing controversy with, the
Department, the Internal Revenue Service, the Justice Department, the
Pension Benefit Guaranty Corporation, the Federal Retirement Thrift
Investment Board, or any other regulatory body involving compliance
with provisions of ERISA, the Code, FERSA, or any other Federal or
state law. If so, the applicant must provide a brief statement
describing the investigation, examination, litigation or controversy.
The Department reserves the right to require the production of
additional information or documentation concerning any of the above
matters. In this regard, a denial of the exemption application will
result from a failure to provide additional information requested by
the Department;
[[Page 14745]]
(8) Whether any plan affected by the requested exemption has
experienced a reportable event under ERISA section 4043, and, if so, a
description of the circumstances of any such reportable event;
(9) Whether a notice of intent to terminate has been filed under
ERISA section 4041 respecting any plan affected by the requested
exemption, and, if so, a description of the circumstances for the
issuance of such notice;
(10) Names, addresses, phone numbers, and email addresses of all
parties involved in the subject transaction;
(11) The estimated number of participants and beneficiaries in each
plan affected by the requested exemption as of the date of the
application;
(12) The percentage of the fair market value of the total assets of
each affected plan that is involved in the exemption transaction. If
the exemption transaction includes the acquisition of an asset by the
plan, the fair market value of the asset to be acquired must be
included in both the numerator and denominator of the fraction;
(13) Whether the exemption transaction has been consummated or will
be consummated only if the exemption is granted;
(14) If the exemption transaction has already been consummated:
(i) The circumstances which resulted in plan fiduciaries causing
the plan(s) to engage in the transaction before obtaining an exemption
from the Department;
(ii) Whether the transaction has been terminated;
(iii) Whether the transaction has been corrected as defined in Code
section 4975(f)(5);
(iv) Whether Form 5330, Return of Excise Taxes Related to Employee
Benefit Plans, has been filed with the Internal Revenue Service with
respect to the transaction; and
(v) Whether any excise taxes due under Code section 4975(a) and
(b), or any civil penalties due under ERISA section 502(i) or (l) by
reason of the transaction have been paid. If so, the applicant should
submit documentation (e.g., a canceled check) demonstrating that the
excise taxes or civil penalties were paid;
(15) The name of every person who has authority or investment
discretion over any plan assets involved in the exemption transaction
and the relationship of each such person to the parties in interest
involved in the exemption transaction and the affiliates of such
parties in interest;
(16) Whether or not the assets of the affected plan(s) are
invested, directly or indirectly, in loans to any party involved in the
exemption transaction, in property leased to any party involved in the
exemption transaction, or in securities issued by any party involved in
the exemption transaction, and, if such investments exist, a statement
for each of these three types of investments which indicates:
(i) The type of investment to which the statement pertains;
(ii) The aggregate fair market value of all investments of this
type as reflected in the plan's most recent annual report;
(iii) The approximate percentage of the fair market value of the
plan's total assets as shown in such annual report that is represented
by all investments of this type; and
(iv) The statutory or administrative exemption covering these
investments, if any;
(17) The approximate aggregate fair market value of the total
assets of each affected plan;
(18) The person(s) or entity who will bear the costs of:
(i) The exemption application;
(ii) Any commissions, fees, or costs associated with the exemption
transaction, and any related transaction; and
(iii) Notifying interested persons; provided, in each case, that
the plan may not bear the costs of the exemption application,
commissions, fees, and costs incurred to notify interested persons
unless the Department determines, at its sole discretion, that a
compelling circumstance exists that necessitates the payment of these
expenses by the plan;
(19) Whether an independent fiduciary is or will be involved in the
exemption transaction and, if so, the names of the persons who will
bear the cost of the fee payable to such fiduciary; and
(20) Any prior transaction between:
(i) The plan or plan sponsor; and
(ii) A party involved in the exemption transaction.
(b) Each application for an individual exemption must also include:
(1) True copies of all contracts, deeds, agreements, and
instruments, as well as relevant portions of plan documents, trust
agreements, and any other documents bearing on the exemption
transaction;
(2) A discussion of the facts relevant to the exemption transaction
that are reflected in the documents listed in paragraph (b)(1) of this
section and an analysis of their bearing on the requested exemption;
(3) A copy of the most recent financial statements of each plan
affected by the requested exemption; and
(4) A net worth statement with respect to any party that is
providing a personal guarantee with respect to the exemption
transaction.
(c) Special rules for applications for individual exemption
involving pooled funds are as follows:
(1) The information required by paragraphs (a)(8) through (12) of
this section is not required to be furnished in an application for
individual exemption involving one or more pooled funds.
(2) The information required by paragraphs (a)(1) through (7) and
(13) through (19) of this section and by paragraphs (b)(1) through (3)
of this section must be furnished in reference to the pooled fund,
rather than to the plans participating therein. (For purposes of this
paragraph (c)(2), the information required by paragraph (a)(16) of this
section relates solely to other pooled fund transactions with, and
investments in, parties in interest involved in the exemption
transaction which are also sponsors of plans which invest in the pooled
fund.)
(3) The following information must also be furnished--
(i) The estimated number of plans that are participating (or will
participate) in the pooled fund; and
(ii) The minimum and maximum limits imposed by the pooled fund (if
any) on the portion of the total assets of each plan that may be
invested in the pooled fund.
(4) Additional requirements for applications for individual
exemptions involving pooled funds in which certain plans participate
are as follows:
(i) This paragraph (c)(4) applies to any application for an
individual exemption involving one or more pooled funds in which any
plan participating therein--
(A) Invests an amount which exceeds 20 percent of the total assets
of the pooled fund; or
(B) Covers employees of:
(1) The party sponsoring or maintaining the pooled fund, or any
affiliate of such party; or
(2) Any fiduciary with investment discretion over the pooled fund's
assets, or any affiliate of such fiduciary.
(ii) The exemption application must include, with respect to each
plan described in paragraph (c)(4)(i) of this section, the information
required by paragraphs (a)(1) through (3), (5) through (7), (10), (12)
through (16), and (18) and (19) of this section. The information
required by this paragraph (c)(4)(ii) must be furnished in reference to
the plan's investment in the pooled
[[Page 14746]]
fund (e.g., the names, addresses, phone numbers, and email addresses of
all fiduciaries responsible for the plan's investment in the pooled
fund (paragraph (a)(10) of this section), the percentage of the assets
of the plan invested in the pooled fund (paragraph (a)(12) of this
section), whether the plan's investment in the pooled fund has been
consummated or will be consummated only if the exemption is granted
(paragraph (a)(13) of this section, etc.).
(iii) The information required by paragraph (c)(4) of this section
is in addition to the information required by paragraphs (c)(2) and (3)
of this section relating to information furnished by reference to the
pooled fund.
(5) The special rule and the additional requirements described in
paragraphs (c)(1) through (4) of this section do not apply to an
individual exemption request solely for the investment by a plan in a
pooled fund. Such an application must provide the information required
by paragraphs (a) and (b) of this section.
(d)(1) Generally, the Department will consider exemption requests
for retroactive relief only when:
(i) The safeguards necessary for the grant of a prospective
exemption were in place at the time at which the parties entered into
the transaction; and
(ii) The plan and its participants and beneficiaries have not been
harmed by the transaction. An applicant for a retroactive exemption
must demonstrate that the responsible plan fiduciaries acted in good
faith by taking all appropriate steps necessary to protect the plan
from abuse, loss, and risk at the time of the transaction. An applicant
should further explain and describe whether the transaction could have
been performed without engaging in a prohibited transaction.
(2) Among the factors that the Department will take into account in
making a finding that an applicant acted in good faith include the
following:
(i) The involvement of an independent fiduciary before a
transaction occurs who acts on behalf of the plan and is qualified to
negotiate, approve, and monitor the transaction; provided, however, the
Department may consider, at its sole discretion, an independent
fiduciary's appointment and retrospective review after completion of
the exemption transaction due to exigent circumstances;
(ii) The existence of a contemporaneous appraisal by a qualified
independent appraiser or reference to an objective third party source,
such as a stock or bond index;
(iii) The existence of a bidding process or evidence of comparable
fair market transactions with unrelated third parties;
(iv) That the applicant has submitted an accurate and complete
exemption application that contains documentation of all necessary and
relevant facts and representations upon which the applicant relied. In
this regard, the Department will accord appropriate weight to facts and
representations which are prepared and certified by a source
independent of the applicant;
(v) That the applicant has submitted evidence that the plan
fiduciary did not engage in an act or transaction with respect to which
the fiduciary should have known, consistent with its ERISA fiduciary
duties and responsibilities, was prohibited under ERISA section 406
and/or Code section 4975. In this regard, the Department will accord
appropriate weight to the submission of a contemporaneous, reasoned
legal opinion of counsel, upon which the plan fiduciary relied in good
faith before engaging in the act or transaction;
(vi) That the applicant has submitted a statement of the
circumstances which prompted the submission of the application for
exemption and the steps taken by the applicant with regard to the
transaction upon discovery of the violation;
(vii) That the applicant has submitted a statement, prepared and
certified by an independent person familiar with the types of
transactions for which relief is requested, demonstrating that the
terms and conditions of the transaction (including, in the case of an
investment, the return in fact realized by the plan) were at least as
favorable to the plan as that obtainable in a similar transaction with
an unrelated party; and
(viii) Such other undertakings and assurances with respect to the
plan and its participants that may be offered by the applicant which
are relevant to the criteria under ERISA section 408(a) and Code
section 4975(c)(2).
(3) The Department, as a general matter, will not consider requests
for retroactive exemptions where transactions or conduct with respect
to which an exemption is requested resulted in a loss to the plan, as
determined pursuant to the facts existing at the time of the exemption
application. In addition, the Department will not consider requests for
exemptions where the transactions are inconsistent with the general
fiduciary responsibility provisions of ERISA sections 403 or 404 or the
exclusive benefit requirements of Code section 401(a).
Sec. 2570.36 Where to file an application.
The Department's prohibited transaction exemption program is
administered by the Employee Benefits Security Administration (EBSA).
Any exemption application governed by this subpart may be emailed to
the Department at [email protected] The applicant is not required to
submit a paper copy if an electronic copy is submitted. If the
applicant wants to submit a paper copy of the application, it may be
mailed via first-class mail to: Employee Benefits Security
Administration, Office of Exemption Determinations, U.S. Department of
Labor, 200 Constitution Avenue NW, Suite 400 Washington, DC 20210 or
via private carrier service to Employee Benefit Security
Administration, U.S. Department of Labor, Office of Exemption
Determinations, 122 C Street NW, Suite 400, Washington, DC 20001-2109.
The mail or private carrier service addresses, however, may be subject
to change, and the applicant should confirm the address with the Office
of Exemption Determinations before submitting a paper copy of an
application.
Sec. 2570.37 Duty to amend and supplement exemption applications.
(a) During the Department's consideration of an exemption request,
and following any grant by the Department of an exemption request, an
applicant must promptly notify the Department in writing if he or she
discovers that any material fact or representation contained in the
application or in any documents or testimony provided in support of the
application was inaccurate at the time it was provided in support of
the application. If any material fact or representation changes during
this period, or if anything occurs that may affect the continuing
accuracy of any such fact or representation, the applicant must
promptly notify the Department in writing of the change. In addition,
an applicant must promptly notify the Department in writing if it
learns that a material fact or representation has been omitted from the
exemption application.
(b) If, at any time during the pendency of an exemption
application, the applicant or any other party who would participate in
the exemption transaction becomes the subject of an investigation or
enforcement action by the Department, the Internal Revenue Service, the
Justice Department, the Pension Benefit Guaranty Corporation, the
Federal Retirement Thrift Investment Board, or any other Federal or
state governmental entity involving
[[Page 14747]]
compliance with provisions of ERISA, provisions of the Code relating to
employee benefit plans, or provisions of FERSA relating to the Federal
Thrift Savings Fund, the applicant must promptly notify the Department.
(c) The Department may require an applicant to provide any
documentation it considers necessary to verify any statements contained
in the application or in supporting materials or documents.
Sec. 2570.38 Tentative denial letters.
(a) If, after reviewing an exemption file, the Department
tentatively concludes that it will not propose or grant the exemption,
it will notify the applicant in writing, except as provided in
paragraph (b) of this section. At the same time, the Department will
provide a brief statement of the reasons for its tentative denial.
Note 1 to paragraph (a). As referenced in Sec. 2570.33(a)(1),
the Department will not hold a conference with, or issue a tentative
denial letter to, an applicant who does not submit a complete
application, or an applicant who does not provide current
information.
(b) An applicant will have 20 days from the date of a tentative
denial letter, unless the time period is extended by the Department at
its sole discretion, to request a conference under Sec. 2570.40 and/or
to notify the Department of its intent to submit additional information
under Sec. 2570.39. If the Department does not receive a request for a
conference or a notification of intent to submit additional information
within that time, it will issue a final denial letter pursuant to Sec.
2570.41.
Sec. 2570.39 Opportunities to submit additional information.
(a) An applicant may notify the Department of its intent to submit
additional information supporting an exemption application by
telephone, by letter sent to the address furnished in the applicant's
tentative denial letter, or electronically to the email address
provided in the applicant's tentative denial letter. At the same time,
the applicant should indicate generally the type of information that
will be submitted.
(b) The additional information an applicant intends to provide in
support of the application must be in writing and be received by the
Department within 40 days from the date the Department issues the
tentative denial letter unless the time period is extended by the
Department at its sole discretion. All such information must be
accompanied by a declaration under penalty of perjury attesting to the
truth and correctness of the information provided, which is dated and
signed by a person qualified under Sec. 2570.34(b)(6) to sign such a
declaration. The information may be submitted either electronically or
by mail.
(c) If, for reasons beyond its control, an applicant is unable to
submit all the additional information he or she intends to provide in
support of his or her application within the period described in
paragraph (b) of this section, he or she may request an extension of
time to furnish the information. Such requests must be made before the
expiration of the time period described in paragraph (b), and the
request will be granted, in the Department's sole discretion, only in
unusual circumstances and for a limited period as determined by the
Department. The request may be made by telephone, mail, or
electronically.
(d) The Department will issue, without further notice, either by
mail or electronically, a final denial letter denying the requested
exemption pursuant to Sec. 2570.41 where--
(1) The Department has not received the additional information that
the applicant stated his or her intention to submit within the period
described in paragraph (b) of this section, or within any additional
period granted pursuant to paragraph (c) of this section; and
(2) The applicant did not request a conference pursuant to Sec.
2570.38(b).
Sec. 2570.40 Conferences.
(a) Any conference between the Department and an applicant
pertaining to a requested exemption will be held in Washington, DC,
except that a telephone or electronic conference will be held at the
applicant's request.
(b) An applicant is entitled to only one conference with respect to
any exemption application. The Department may hold additional
conferences at its sole discretion if it determines additional
conference(s) are appropriate. An applicant will not be entitled to a
conference, however, where the Department has held a hearing on the
exemption under either Sec. 2570.46 or Sec. 2570.47.
(c) Insofar as possible, conferences will be scheduled as joint
conferences with all applicants present where:
(1) More than one applicant has requested an exemption with respect
to the same or similar types of transactions;
(2) The Department is considering the applications together as a
request for a class exemption;
(3) The Department contemplates not granting the exemption; and
(4) More than one applicant has requested a conference.
(d) In instances where the applicant has requested a conference
pursuant to Sec. 2570.38(b) and also has submitted additional
information pursuant to Sec. 2570.39, the Department will schedule a
conference under this section for a date and time that occurs within 20
days after the date on which the Department has provided either oral or
written notification to the applicant that, after reviewing the
additional information, it is still not prepared to propose the
requested exemption or a later date at the sole discretion of the
Department. If, for reasons beyond its control, the applicant cannot
attend a conference within the time limit described in this paragraph
(d), the applicant may request an extension of time for the scheduling
of a conference, provided that such request is made before the
expiration of the time limit. The Department, at its sole discretion,
will only grant such an extension in unusual circumstances and for a
brief period.
(e) In instances where the applicant has requested a conference
pursuant to Sec. 2570.38(b) but has not expressed an intent to submit
additional information in support of the exemption application as
provided in Sec. 2570.39, the Department will schedule a conference
under this section for a date and time that occurs within 40 days after
the date of the issuance of the tentative denial letter described in
Sec. 2570.38(a) or a later date at the sole discretion of the
Department. If, for reasons beyond its control, the applicant cannot
attend a conference within the time limit described in this paragraph
(e), the applicant may request an extension of time for the scheduling
of a conference, provided that such request is made before the
expiration of the time limit. The Department, at its sole discretion,
will only grant such an extension in unusual circumstances and for a
brief period.
(f) In instances where the applicant has requested a conference
pursuant to Sec. 2570.38(b), has notified the Department of its intent
to submit additional information pursuant to Sec. 2570.39, and has
failed to furnish such information within 40 days from the date of the
tentative denial letter, the Department will schedule a conference
under this section for a date and time that occurs within 60 days after
the date of the issuance of the tentative denial letter described in
Sec. 2570.38(a) or a later date as determined at the sole discretion
of the Department. If, for reasons beyond its control, the applicant
cannot attend a conference within the time limit described in this
paragraph (f), the applicant may request an extension of
[[Page 14748]]
time for the scheduling of a conference, provided that such request is
made before the expiration of the time limit. The Department, at its
sole discretion, will only grant such an extension in unusual
circumstances and for a brief period.
(g) If the applicant fails to either timely schedule or appear for
a conference agreed to by the Department pursuant to this section, the
applicant will be deemed to have waived its right to a conference.
(h) Within 20 days after the date of any conference held under this
section or a later date at the sole discretion of the Department, the
applicant may submit to the Department (electronically or in paper
form) any additional written data, arguments, or precedents discussed
at the conference but not previously or adequately presented in
writing. If, for reasons beyond its control, the applicant is unable to
submit the additional information within this time limit, the applicant
may request an extension of time to furnish the information, provided
that such request is made before the expiration of the time limit
described in this paragraph (h). The Department, at its sole
discretion, will only grant such an extension in unusual circumstances
and for a brief period.
(i) The Department, at its sole discretion, may hold a conference
with any party, including the qualified independent fiduciary or the
qualified independent appraiser, regarding any matter related to an
exemption request without the presence of the applicant or other
parties to the exemption transaction, or their representatives. Any
such conferences may occur in addition to the conference with the
applicant described in paragraph (b) of this section.
Sec. 2570.41 Final denial letters.
The Department will issue a final denial letter denying a requested
exemption, either by mail or electronically, where:
(a) Prior to issuing a tentative denial letter under Sec. 2570.38
or conducting a hearing on the exemption under either Sec. 2570.46 or
Sec. 2570.47, the Department determines, at its sole discretion, that:
(1) The applicant has failed to submit information requested by the
Department in a timely manner;
(2) The information provided by the applicant does not meet the
requirements of Sec. Sec. 2570.34 and 2570.35; or
(3) If a conference has been held between the Department and the
applicant prior to the issuance of a tentative denial letter during
which the Department and the applicant addressed the reasons for denial
that otherwise would have been set forth in a tentative denial letter
pursuant to Sec. 2570.38;
(b) The conditions for issuing a final denial letter specified in
Sec. 2570.38(b) or Sec. 2570.39(d) are satisfied;
(c) After issuing a tentative denial letter under Sec. 2570.38 and
considering the entire record in the case, including all written
information submitted pursuant to Sec. Sec. 2570.39 and 2570.40, the
Department decides not to propose an exemption or to withdraw an
exemption already proposed;
(d) After proposing an exemption and conducting a hearing on the
exemption under either Sec. 2570.46 or Sec. 2570.47 and after
considering the entire record in the case, including the record of the
hearing and any public comments, the Department decides to withdraw the
proposed exemption; or
(e) The applicant either:
(1) Asks to withdraw the exemption application; or
(2) Communicates to the Department that it is not interested in
continuing the application process.
Sec. 2570.42 Notice of proposed exemption.
If the Department tentatively decides that an administrative
exemption is warranted, it will publish a notice of a proposed
exemption in the Federal Register. In addition to providing notice of
the pendency of the exemption before the Department, the notice will:
(a) Explain the exemption transaction and summarize the information
and reasons in support of proposing the exemption;
(b) Describe the scope of relief and any conditions of the proposed
exemption;
(c) Inform interested persons of their right to submit comments to
the Department (either electronically or in writing) relating to the
proposed exemption and establish a deadline for receipt of such
comments; and
(d) Where the proposed exemption includes relief from the
prohibitions of ERISA section 406(b), Code section 4975(c)(1)(E) or
(F), or FERSA section 8477(c)(2), inform interested persons of their
right to request a hearing under Sec. 2570.46 and establish a deadline
for receipt of requests for such hearings.
Sec. 2570.43 Notification of interested persons by applicant.
(a) If a notice of proposed exemption is published in the Federal
Register in accordance with Sec. 2570.42, the applicant must notify
interested persons of the pendency of the exemption in the manner and
within the time period specified in the application. If the Department
determines that this notification would be inadequate, the applicant
must obtain the Department's consent as to the manner and time period
of providing the notice to interested persons. Any such notification
must include:
(1) A copy of the notice of proposed exemption as published in the
Federal Register; and
(2) A supplemental statement in the following form:
You are hereby notified that the United States Department of
Labor is considering granting an exemption from the prohibited
transaction restrictions of the Employee Retirement Income Security
Act of 1974, the Internal Revenue Code of 1986, or the Federal
Employees' Retirement System Act of 1986. The exemption under
consideration is summarized in the enclosed [Summary of Proposed
Exemption, and described in greater detail in the accompanying] \1\
Notice of Proposed Exemption. As a person who may be affected by
this exemption, you have the right to comment on the proposed
exemption by [date].\2\ [If you may be materially affected by the
grant of the exemption, you also have the right to request a hearing
on the exemption by [date].] \3\
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\1\ To be added in instances where the Department requires the
applicant to furnish a Summary of Proposed Exemption to interested
persons as described in paragrpah (d) of this section.
\2\ The applicant will write in this space the date of the last
day of the time period specified in the notice of proposed
exemption.
\3\ To be added in the case of an exemption that provides relief
from section 406(b) of ERISA or corresponding sections of the Code
or FERSA.
---------------------------------------------------------------------------
All comments and/or requests for a hearing should be addressed
to the Office of Exemption Determinations, Employee Benefits
Security Administration, Room __,\4\ U.S. Department of Labor, 200
Constitution Avenue NW, Washington, DC 20210, ATTENTION: Application
No. __.\5\ Comments and hearing requests may also be transmitted to
the Department electronically at [email protected] or at https://www.regulations.gov (follow instructions for submission), and should
prominently reference the application number listed above.
Individuals submitting comments or requests for a hearing on this
matter are advised not to disclose sensitive personal data, such as
social security numbers or information that they consider
confidential or otherwise protected.
---------------------------------------------------------------------------
\4\ The applicant will fill in the room number of the Office of
Exemptions Determinations. As of [date of publication of the final
regulation], the room number of the Office of Exemption
Determinations is N-5700.
\5\ The applicant will fill in the exemption application number,
which is stated in the notice of proposed exemption, as well as in
all correspondence from the Department to the applicant regarding
the application.
---------------------------------------------------------------------------
The Department will make no final decision on the proposed
exemption until it reviews the comments received in response to the
enclosed notice. If the Department decides to hold a hearing on the
exemption request before making its final decision, you
[[Page 14749]]
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will be notified of the time and place of the hearing.
(b) The method used by an applicant to furnish notice to interested
persons must be reasonably calculated to ensure that interested persons
actually receive the notice. In all cases, personal delivery and
delivery by first-class mail will be considered reasonable methods of
furnishing notice. If the applicant elects to furnish notice
electronically, he or she must provide satisfactory proof that the
entire class of interested persons will be able to receive the notice.
(c) After furnishing the notification described in paragraph (a) of
this section, an applicant must provide the Department with a written
statement confirming that notice was furnished in accordance with the
requirements in paragraph (b) of this section. This statement must be
accompanied by a declaration under penalty of perjury attesting to the
truth of the information provided in the statement and signed by a
person qualified under Sec. 2570.34(b)(6) to sign such a declaration.
No exemption will be granted until such a statement and its
accompanying declaration have been furnished to the Department.
(d) In addition to the provision of notification required by
paragraph (a) of this section, the Department, in its discretion, may
also require an applicant to furnish interested persons with a brief
summary of the proposed exemption (Summary of Proposed Exemption),
written in a manner calculated to be understood by the average
recipient, which objectively describes:
(1) The exemption transaction and the parties in interest thereto;
(2) Why such transaction would violate the prohibited transaction
provisions of ERISA, the Code, and/or FERSA from which relief is
sought;
(3) The reasons why the plan seeks to engage in the transaction;
and
(4) The conditions and safeguards proposed to protect the plan and
its participants and beneficiaries from potential abuse or unnecessary
risk of loss in the event the Department grants the exemption.
(e) Applicants who are required to provide interested persons with
the Summary of Proposed Exemption described in paragraph (d) of this
section shall furnish the Department with a copy of such summary for
review and approval prior to its distribution to interested persons.
Such applicants shall also provide confirmation to the Department that
the Summary of Proposed Exemption was furnished to interested persons
as part of the written statement and declaration required of exemption
applicants by paragraph (c) of this section.
Sec. 2570.44 Withdrawal of exemption applications.
(a) An applicant may withdraw an application for an exemption at
any time by oral or written (including electronic) notice to the
Department. A withdrawn application generally shall not prejudice any
subsequent applications for an exemption submitted by an applicant.
(b) Upon receiving an applicant's notice of withdrawal regarding an
application for an individual exemption, the Department will issue a
final denial letter in accordance with Sec. 2570.41(e) and will
terminate all proceedings relating to the application. If a notice of
proposed exemption has been published in the Federal Register, the
Department will publish a notice withdrawing the proposed exemption.
(c) Upon receiving an applicant's notice of withdrawal regarding an
application for a class exemption or for an individual exemption that
is being considered with other applications as a request for a class
exemption, the Department will inform any other applicants for the
exemption of the withdrawal. The Department will continue to process
other applications for the same exemption. If all applicants for a
particular class exemption withdraw their applications, the Department
may either terminate all proceedings relating to the exemption or
propose the exemption on its own motion.
(d) If, following the withdrawal of an exemption application, an
applicant decides to reapply for the same exemption, he or she may
contact the Department in writing (including electronically) to request
that the application be reinstated. The applicant should refer to the
application number assigned to the original application. If, at the
time the original application was withdrawn, any additional information
to be submitted to the Department under Sec. 2570.39 was outstanding,
that information must accompany the request for reinstatement of the
application. The applicant must also update all previously furnished
information to the Department in connection with a withdrawn
application.
(e) Any request for reinstatement of a withdrawn application
submitted, in accordance with paragraph (d) of this section, will be
granted by the Department, and the Department will take whatever steps
remained at the time the application was withdrawn to process the
application.
(f) Following the withdrawal of an exemption application, the
administrative record will remain subject to public inspection and copy
pursuant to Sec. 2570.51.
Sec. 2570.45 Requests for reconsideration.
(a) The Department will entertain one request for reconsideration
of an exemption application that has been finally denied pursuant to
Sec. 2570.41 if the applicant presents in support of the application
significant new facts or arguments, which, for good reason, could not
have been submitted for the Department's consideration during its
initial review of the exemption application.
(b) A request for reconsideration of a previously denied
application must be made within 180 days after the issuance of the
final denial letter and must be accompanied by a copy of the
Department's final letter denying the exemption and a statement setting
forth the new information and/or arguments that provide the basis for
reconsideration.
(c) A request for reconsideration must also be accompanied by a
declaration under penalty of perjury attesting to the truth of the new
information provided, which is signed by a person qualified under Sec.
2570.34(b)(6) to sign such a declaration.
(d) If, after reviewing a request for reconsideration, the
Department decides that the facts and arguments presented do not
warrant reversal of its original decision to deny the exemption, it
will send a letter to the applicant reaffirming that decision.
(e) If, after reviewing a request for reconsideration, the
Department decides, based on the new facts and arguments submitted, to
reconsider its final denial letter, it will notify the applicant of its
intent to reconsider the application in light of the new information
presented. The Department will then take whatever steps remained at the
time it issued its final denial letter to process the exemption
application.
(f) If, at any point during its subsequent processing of the
application, the Department decides again that the exemption is
unwarranted, it will issue a letter affirming its final denial.
(g) A request for reinstatement of an exemption application
pursuant to Sec. 2570.44(d) is not a request for reconsideration
governed by this section.
[[Page 14750]]
Sec. 2570.46 Hearings in opposition to exemptions from restrictions
on fiduciary self-dealing and conflicts of interest.
(a) Any person who may be materially affected by an exemption which
the Department proposes to grant from the restrictions of ERISA section
406(b), Code section 4975(c)(1)(E) or (F), or FERSA section 8477(c)(2)
may request a hearing before the Department within the period of time
specified in the Federal Register notice of the proposed exemption. Any
such request must state:
(1) The name, address, telephone number, and email address of the
person making the request;
(2) The nature of the person's interest in the exemption and the
manner in which the person would be materially affected by the
exemption; and
(3) A statement of the issues to be addressed and a general
description of the evidence to be presented at the hearing.
(b) The Department will grant a request for a hearing made in
accordance with paragraph (a) of this section where a hearing is
necessary to fully explore material factual issues with respect to the
proposed exemption identified by the person requesting the hearing. A
notice of such hearing shall be published by the Department in the
Federal Register. The Department may decline to hold a hearing where:
(1) The request for the hearing is not timely, or otherwise fails
to include the information required by paragraph (a) of this section;
(2) The only issues identified for exploration at the hearing are
matters of law; or
(3) The factual issues identified can be fully explored through the
submission of evidence in written (including electronic) form.
(c) An applicant for an exemption must notify interested persons in
the event that the Department schedules a hearing on the exemption.
Such notification must be given in the form, time, and manner
prescribed by the Department. Ordinarily, however, adequate
notification can be given by providing to interested persons a copy of
the notice of hearing published by the Department in the Federal
Register within 10 days of its publication, using any of the methods
approved in Sec. 2570.43(b).
(d) After furnishing the notice required by paragraph (c) of this
section, an applicant must submit a statement confirming that notice
was given in the form, manner, and time prescribed. This statement must
be accompanied by a declaration under penalty of perjury attesting to
the truth of the information provided in the statement, which is signed
by a person qualified under Sec. 2570.34(b)(6) to sign such a
declaration.
Sec. 2570.47 Other hearings.
(a) In its discretion, the Department may schedule a hearing on its
own motion where it determines that issues relevant to the exemption
can be most fully or expeditiously explored at a hearing. A notice of
such hearing shall be published by the Department in the Federal
Register.
(b) An applicant for an exemption must notify interested persons of
any hearing on an exemption scheduled by the Department in the manner
described in Sec. 2570.46(c). In addition, the applicant must submit a
statement subscribed as true under penalty of perjury like that
required in Sec. 2570.46(d).
Sec. 2570.48 Decision to grant exemptions.
(a) The Department may not grant an exemption under ERISA section
408(a), Code section 4975(c)(2), or 5 U.S.C. 8477(c)(3)(C) unless,
following evaluation of the facts and representations comprising the
administrative record of the proposed exemption (including any comments
received in response to a notice of proposed exemption and the record
of any hearing held in connection with the proposed exemption), it
finds that the exemption meets the statutory requirements by being:
(1) Administratively feasible for the Department;
(2) In the interests of the plan (or the Thrift Savings Fund in the
case of FERSA) and of its participants and beneficiaries; and
(3) Protective of the rights of participants and beneficiaries of
such plan (or the Thrift Savings Fund in the case of FERSA).
(b) In each instance where the Department determines to grant an
exemption, it shall publish a notice in the Federal Register which
summarizes the transaction or transactions for which exemptive relief
has been granted and specifies the conditions under which such
exemptive relief is available.
Sec. 2570.49 Limits on the effect of exemptions.
(a) An exemption does not take effect with respect to the exemption
transaction unless the material facts and representations contained in
the application and in any materials and documents submitted in support
of the application were true and complete.
(b) An exemption is effective only for the period of time specified
and only under the conditions set forth in the exemption.
(c) Only the specific parties to whom an exemption grants relief
may rely on the exemption. If the notice granting an exemption does not
limit exemptive relief to specific parties, all parties to the
exemption transaction may rely on the exemption.
(d) For transactions that are continuing in nature, an exemption
ceases to be effective if, during the continuation of the transaction,
there are material changes to the original facts and representations
underlying such exemption or if one or more of the exemption's
conditions cease to be met.
(e) The determination as to whether, under the totality of the
facts and circumstances, a particular statement contained in (or
omitted from) an exemption application constitutes a material fact or
representation is made by the Department in its sole discretion.
Sec. 2570.50 Revocation or modification of exemptions.
(a) If, after an exemption takes effect, material changes in facts,
circumstances, or representations occur, including whether a qualified
independent fiduciary resigns, is terminated, or is convicted of a
crime, the Department, at its sole discretion, may take steps to revoke
or modify the exemption. In the event that the qualified independent
fiduciary resigns, is terminated, or is convicted of a crime, the
applicant must notify the Department within 30 days of the resignation,
termination, or conviction, and the Department reserves the right to
request that the applicant provide the Department with any of the
information required pursuant to Sec. 2570.34(e) and (f) pursuant to a
time determined by the Department at its sole discretion.
(b) Before revoking or modifying an exemption, the Department will
publish a notice of its proposed action in the Federal Register and
provide interested persons with an opportunity to comment on the
proposed revocation or modification. Prior to the publication of such
notice, the applicant will be notified of the Department's proposed
action and the reasons therefore. Subsequent to the publication of the
notice, the applicant will have the opportunity to comment on the
proposed revocation or modification.
(c) The revocation or modification of an exemption will have
prospective effect only.
Sec. 2570.51 Public inspection and copies.
(a) From the date the administrative record of each exemption is
established pursuant to Sec. 2570.32(d), the administrative record of
each exemption will be open to public inspection and
[[Page 14751]]
copying at the EBSA Public Disclosure Room, U.S. Department of Labor,
200 Constitution Avenue NW, Washington, DC 20210.
(b) Upon request, the staff of the Public Disclosure Room will
furnish photocopies of an administrative record, or any specified
portion of that record, for a specified charge per page; or, at the
discretion of the staff, provide the administrative record
electronically for a specified charge.
Sec. 2570.52 Effective date.
This subpart is effective with respect to all exemptions filed with
or initiated by the Department under ERISA section 408(a), Code section
4975(c)(2), and/or 5 U.S.C. 8477(c)(3) at any time on or after [date 90
days after date of publication of the final rule]. Applications for
exemptions under ERISA section 408(a), Code section 4975(c)(2), and/or
5 U.S.C. 8477(c)(3) filed on or after December 27, 2011, but before
[date 90 days after date of publication of the final rule], are
governed by 29 CFR part 2570 (revised effective December 27, 2011).
Signed at Washington, DC, this 3rd day of March, 2022.
Ali Khawar,
Acting Assistant Secretary, Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2022-04963 Filed 3-14-22; 8:45 am]
BILLING CODE 4510-29-P
