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Secretary of Labor Thomas E. Perez
Amendment to Prohibited Transaction Exemption 97-11 (PTE 97-11) for the Receipt of Certain Investment Services by Individuals for Whose Benefit Individual Retirement Accounts or Retirement Plans for Self- Employed Individuals Have Been Established or Maintained [Notices] [03/08/1999]

EBSA (Formerly PWBA) Federal Register Notice

Amendment to Prohibited Transaction Exemption 97-11 (PTE 97-11) for the Receipt of Certain Investment Services by Individuals for Whose Benefit Individual Retirement Accounts or Retirement Plans for Self- Employed Individuals Have Been Established or Maintained [03/08/1999]

[PDF Version]

Volume 64, Number 44, Page 11042-11044

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application Number: D-10554]

 
Amendment to Prohibited Transaction Exemption 97-11 (PTE 97-11) 
for the Receipt of Certain Investment Services by Individuals for Whose 
Benefit Individual Retirement Accounts or Retirement Plans for Self-
Employed Individuals Have Been Established or Maintained

AGENCY: Pension and Welfare Benefits Administration, U.S. Department of 
Labor.

ACTION: Adoption of Amendment to PTE 97-11.

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SUMMARY: This document amends PTE 97-11, a class exemption that permits 
the receipt of services at reduced or no cost by an individual for 
whose benefit an individual retirement account (IRA) or, if self-
employed, a Keogh Plan, is established or maintained, or by members of 
his or her family, from a broker-dealer, provided that the conditions 
of the exemption are met. The amendment affects individuals with a 
beneficial interest in the IRAs and Keogh Plans who receive such 
services as well as the broker-dealers who provide such services.

EFFECTIVE DATE: The amendment is effective January 1, 1998.

FOR FURTHER INFORMATION CONTACT: Allison Padams Lavigne, Office of 
Exemption Determinations, U.S. Department of Labor, (202) 219-8971, 
(this is not a toll-free number).


[[Page 11043]]


SUPPLEMENTARY INFORMATION: On October 21, 1998, notice was published in 
the Federal Register (63 FR 56231) of the pendency before the 
Department of a proposed amendment to PTE 97-11 (62 FR 5855, February 
7, 1997). PTE 97-11 provides relief from the restrictions of sections 
406(a)(1)(D) and 406(b) of ERISA and the sanctions resulting from the 
application of sections 4975(a) and (b), 4975(c)(3) and 408(e)(2) of 
the Internal Revenue Code of 1986 (the Code) by reason of section 
4975(c)(1)(D), (E) and (F) of the Code.<SUP>*</SUP>
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    \*\ Section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
47713, October 17,1978) generally transferred the authority of the 
Secretary of the Treasury to issue administrative exemptions under 
section 4975(c)(2) of the Code to the Secretary of Labor.
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    The amendment to PTE 97-11 adopted by this notice was requested in 
an exemption application filed on behalf of the Securities Industry 
Association (SIA). The exemption application was submitted pursuant to 
section 408(a) of ERISA and section 4975(c)(2) of the Code and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(55 FR 32836, August 10, 1990).
    The notice of pendency gave interested persons an opportunity to 
comment or to request a hearing on the proposed amendment. No public 
comments or requests for a hearing were received.
    For the sake of convenience, the entire text of PTE 97-11, as 
amended, has been reprinted with this notice.
    PTE 97-11 permits the receipt of services at reduced or no cost by 
an individual for whose benefit an IRA or Keogh Plan is established or 
maintained or by members of his or her family, from a broker-dealer 
registered under the Securities Exchange Act of 1934 pursuant to an 
arrangement in which the account value of, or the fees incurred for 
services provided to, the IRA or Keogh Plan is/are taken into account 
for purposes of determining eligibility to receive such services, 
provided that the conditions of the exemption are met.
    The term ``IRA'' is defined in section III(b) of PTE 97-11 to mean 
an individual retirement account described in section 408(a) of the 
Code. The definition further states that, for purposes of this 
exemption, the term IRA shall not include an IRA which is an employee 
benefit plan covered by Title I of ERISA, except for a Simplified 
Employee Pension (SEP) described in section 408(k) of the Code or a 
Simple Retirement Account described in section 408(p) of the Code which 
provides participants with the unrestricted authority to transfer their 
balances to IRAs or Simple Retirement Accounts sponsored by different 
financial institutions. The amendment adopted by this notice modifies 
section III(b) of PTE 97-11 to include education individual retirement 
account (Education IRAs) as defined in section 530 of the Code. The 
Department notes that all the conditions contained in PTE 97-11 still 
must be satisfied with respect to education IRAs as with all other IRAs 
and Keogh Plans covered by the exemption.

General Information

    The attention of interested persons is directed to the following:
    (1) In accordance with section 408(a) of ERISA and section 
4975(c)(2) of the Code and based upon the entire record, the Department 
finds that this amendment is administratively feasible, in the 
interests of the IRAs and Keogh Plans, and their participants and 
beneficiaries and protective of the rights of the participants and 
beneficiaries of such plans.
    (2) The amendment is supplemental to, and not in derogation of, any 
other provisions of ERISA and the Code, including statutory or 
administrative exemptions and transitional rules. Furthermore, the fact 
that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction.
    (3) The class exemption is applicable to a transaction only if the 
conditions specified in the class exemption are met.

Exemption

    Accordingly, PTE 97-11 is amended under the authority of section of 
408(a) of ERISA and section 4975(c)(2) of the Code and in accordance 
with the procedures set forth in 29 CFR part 2570, subpart B (55 FR 
32836, August 10, 1990).

Section I: Covered Transactions

    Effective January 1, 1998, the restrictions of sections 
406(a)(1)(D) and (b) of ERISA, and the sanctions resulting from the 
application of section 4975 of the Code, including the loss of 
exemption of an IRA, pursuant to section 408(e)(2)(A) of the Code, by 
reason of section 4975(c)(1)(D), (E), and (F) of the Code, shall not 
apply to the receipt of services at reduced or no cost by an individual 
for whose benefit an IRA, or, if self-employed, a Keogh Plan, is 
established or maintained, or by members of his or her family, from a 
broker-dealer registered under the Securities Exchange Act of 1934 
pursuant to an arrangement in which the account value of, or the fees 
incurred for services provided to, the IRA or Keogh Plan is taken into 
account for purposes of determining eligibility to receive such 
services, provided that each condition of Section II of this exemption 
is satisfied.

Section II: Conditions

    (a) The IRA or Keogh Plan whose account value or whose fees are 
taken into account for purposes of determining eligibility to receive 
services under the arrangement is established and maintained for the 
exclusive benefit of the participant covered under the IRA or Keogh 
Plan, his or her spouse or their beneficiaries.
    (b) The services offered under the relationship brokerage 
arrangement must be of the type that the broker-dealer itself could 
offer consistent with all applicable federal and state laws regulating 
broker-dealers.
    (c) The services offered under the arrangement are provided by the 
broker-dealer (or an affiliate of the broker-dealer) in the ordinary 
course of the broker-dealer's business to customers who qualify for 
reduced or no cost services, but do not maintain IRAs or Keogh Plans 
with the broker-dealer.
    (d) For the purpose of determining eligibility to receive services, 
the arrangement satisfies one of the following:
    (i) Eligibility requirements based on the account value of the IRA 
or Keogh Plan are as favorable as any such requirements based on the 
value of any other type of account which the broker-dealer includes to 
determine eligibility; or
    (ii) Eligibility requirements based on the amount of fees incurred 
by the IRA or Keogh Plan are as favorable as any requirements based on 
the amount of fees incurred by any other type of account which the 
broker-dealer includes to determine eligibility.
    (e) The combined total of all fees for the provision of services to 
the IRA or Keogh Plan is not in excess of reasonable compensation 
within the meaning of section 4975(d)(2) of the Code.
    (f) The investment performance of the IRA or Keogh Plan investment 
is no less favorable than the investment performance of an identical 
investment(s) that could have been made at the same time by a customer 
of the broker-dealer who is not eligible for (or who does not receive) 
reduced or no cost services.
    (g) The services offered under the arrangement to the IRA or Keogh 
Plan customer must be the same as are

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offered to non-IRA or non-Keogh Plan customers with account values of 
the same amount or the same amount of fees generated.

Section III: Definitions

    The following definitions apply to this exemption:
    (a) The term broker-dealer means a broker-dealer registered under 
the Securities Exchange Act of 1934.
    (b) The term IRA means an individual retirement account described 
in Code section 408(a) or an education individual retirement account 
described in section 530 of the Code. For purposes of this exemption, 
the term IRA shall not include an IRA which is an employee benefit plan 
covered by Title I of ERISA, except for a Simplified Employee Pension 
(SEP) described in section 408(k) of the Code or a Simple Retirement 
Account described in section 408(p) of the Code which provides 
participants with the unrestricted authority to transfer their balances 
to IRAs or Simple Retirement Accounts sponsored by different financial 
institutions.
    (c) The term Keogh Plan means a pension, profit-sharing, or stock 
bonus plan qualified under Code section 401(a) and exempt from taxation 
under Code section 501(a) under which some or all of the participants 
are employees described in section 401(c) of the Code. For purposes of 
this exemption, the term Keogh Plan shall not include a Keogh Plan 
which is an employee benefit plan covered by Title I of ERISA.
    (d) The term account value means investments in cash or securities 
held in the account for which market quotations are readily available. 
For purposes of this exemption, the term cash shall include savings 
accounts that are insured by a federal deposit insurance agency that 
constitute deposits as that term is defined in section 29 CFR 
2550.408b-4(c)(3). The term account value shall not include investments 
in securities that are offered by the broker-dealer (or its affiliate) 
exclusively to IRAs and Keogh Plans.
    (e) An affiliate of a broker-dealer includes any person directly or 
indirectly controlling, controlled by, or under common control with the 
broker-dealer. The term control means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.
    (f) The term members of his or her family refers to beneficiaries 
of the individual for whose benefit the IRA or Keogh Plan is 
established or maintained, who would be members of the family as that 
term is defined in Code section 4975(e)(6), or a brother, a sister, or 
spouse of a brother or sister.
    (g) The term service includes incidental products of a de minimis 
value which are directly related to the provision of services covered 
by the exemption.
    (h) The term fees means commissions and other fees received by the 
broker-dealer from the IRA or Keogh Plan for the provision of services, 
including, but not limited to, brokerage commissions, investment 
management fees, custodial fees, and administrative fees.

    Signed at Washington, DC, this 26th day of February 1999.
Alan D. Lebowitz,
Deputy Assistant Secretary for Program Operations, Pension and Welfare 
Benefits Administration, U. S. Department of Labor.
[FR Doc. 99-5571 Filed 3-5-99; 8:45 am]
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