Electronic Registration Requirements for Investment Advisers To
Be Investment Managers Under Title I of ERISA
[12/09/2003]
Volume 68, Number 236, Page 68709-68715
[[Page 68709]]
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Part III
Department of Labor
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Employee Benefits Security Administration
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29 CFR Part 2510
Electronic Registration Requirements for Investment Advisers To Be
Investment Managers Under Title I of ERISA; Proposed Rule
[[Page 68710]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2510
RIN 1210-AA94
Electronic Registration Requirements for Investment Advisers To
Be Investment Managers Under Title I of ERISA
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains a proposed regulation relating to the
definition of investment manager in section 3(38)(B) of Title I of the
Employee Retirement Income Security Act of 1974 (ERISA). Under the
proposed regulation, in lieu of filing a copy of their state
registration forms with the Secretary of Labor, state-registered
investment advisers seeking to obtain or maintain investment manager
status under Title I of ERISA would have to electronically register
through the Investment Adviser Registration Depository (IARD) as an
investment adviser with the state in which they maintain their
principal office and place of business. The IARD is a centralized
electronic filing system, established by the Securities and Exchange
Commission (SEC) in conjunction with state securities authorities. The
IARD enables investment advisers to satisfy SEC and state registration
obligations through the use of the Internet, and current filing
information in the IARD database is readily available to the Department
and the general public via the Internet. If adopted, the proposed
regulation would make electronic registration through the IARD the
exclusive method for state-registered investment advisers to satisfy
filing requirements for investment manager status under section
3(38)(B)(ii) of Title I of ERISA. The proposed regulation would affect
plan trustees, investment managers, other fiduciaries, and plan
participants and beneficiaries.
DATES: Written comments (either in print or electronic format) are
invited and must be submitted to the Department of Labor on or before
February 9, 2004.
ADDRESSES: Interested persons are invited to submit written comments
(preferably with three copies) to the Office of Regulations and
Interpretations, Room N-5669, Employee Benefits Security
Administration, U.S. Department of Labor, 200 Constitution Ave., NW.,
Washington, DC 20210, Attention: ERISA Investment Manager Electronic
Registration NPRM. Written comments may also be sent by Internet to the following address: E-ORI.EBSA@dol.gov. All submissions received will be
available for public inspection and copying from 8:30 a.m. to 4:30 p.m.
at the Public Disclosure Room, Employee Benefits Security
Administration, U.S. Department of Labor, Room N-1513, 200 Constitution
Ave. NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Florence M. Novellino, Office of
Regulations and Interpretations, Employee Benefits Security
Administration, U.S. Department of Labor, Washington, DC 20210,
telephone (202) 693-8518 (not a toll free number).
SUPPLEMENTARY INFORMATION:
A. Background
Under Title I of the Employee Retirement Income Security Act of
1974 (ERISA), named fiduciaries of plans may appoint investment
managers to manage assets of the plan. If the investment manager is a
registered investment adviser, bank or insurance company, and meets the
other requirements for being an ``investment manager'' as defined in
section 3(38) of ERISA, the plan trustees are relieved from certain
liabilities relating to the investment manager's performance.\1\
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\1\ Section 402(c)(3) of ERISA states that a plan may provide
that with respect to control or management of plan assets a named
fiduciary may appoint an investment manager or managers to manage
(including the power to acquire and dispose of) plan assets. Section
405(d) of ERISA provides in part that, if an investment manager or
managers have been appointed under section 402(c)(3), then no
trustee shall be liable for the acts or omissions of such investment
manager or managers, or be under an obligation to invest or
otherwise manage any asset of the plan which is subject to the
management of such investment manager.
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In 1996, the National Securities Market Improvement Act (NSMIA)
amended the Investment Advisers Act of 1940 (Advisers Act) to divide
certain investment adviser regulatory responsibilities, including the
registration requirements, between the Securities and Exchange
Commission (SEC) and the states. Prior to 1996, most investment
advisers were required to register with the SEC and in each state in
which they were doing business. Pursuant to paragraph (1) of section
203A(a) of the Advisers Act, and SEC rule at 17 CFR 275.203A-1, certain
investment advisers are prohibited from registering with the SEC but
must register with the state in which the adviser maintains it
principal office and place of business.\2\ The legislative history of
NSMIA indicates that this division of regulatory responsibilities was
intended, among other things, to encourage the SEC and state regulators
to create a uniform system for ``one-stop'' filing that would benefit
investors, reduce regulatory and paperwork burdens for registered
investment advisers, and facilitate supervision of investment
advisers.\3\
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\2\ Specifically, subject to certain exceptions, investment
advisers fall into three categories under the NSMIA amendments.
First, investment advisers having assets under management of less
than $25 million generally are prohibited from registering with the
SEC but must register with the state regulatory authority in the
state where the investment adviser maintains its principal office
and place of business. Those with at least $25 million but less than
$30 million may register with the SEC in lieu of filing with state
authorities. Those with $30 million or more must register with the
SEC. Section 203A(a) of the Advisers Act is codified at 15 U.S.C.
80b-3a(a). See also 17 CFR 275.203A-2 for exemptions from the
prohibition for certain investment advisers registering with the
SEC.
\3\ S. Rep. No. 104-293, at 5 (1996).
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The SEC implemented that legislative intent at the federal level by
publishing a final rule in September of 2000 at 17 CFR 275.203-1 which
made electronic filing with the Investment Adviser Registration
Depository (IARD) mandatory for SEC-registered advisers. Additionally,
all states accept forms filed via the IARD to satisfy state
registration requirements, and many mandate state registration via the
IARD.\4\ Accordingly, the IARD has become a ``one-stop'' Internet-based
centralized filing system that enables investment advisers to satisfy
filing obligations with both federal and state securities regulators.
Pertinent state registration information in the IARD database is
available on the Internet to the general public through the Investment
Adviser Public Disclosure (IAPD) Web site that may be directly accessed
through the SEC's Web site or through links from various state and
investor Web sites. The IAPD Web site contains investment adviser
registration data, including information about current registration
forms, registration status, services provided, fees charged, and
disclosures about certain conflicts of interest and disciplinary
events, if any. The IAPD Web site includes information on investment
advisers that currently are registered with the SEC or a state, and
also contains information on investment advisers that were registered
[[Page 68711]]
in the previous two years but are no longer registered.
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\4\ The State of Wyoming has not promulgated a state investment
adviser regulation requirement; therefore all Wyoming-based
investment advisers are required to register under the Advisers Act
with the SEC via the IARD. See 65 FR 57438, 57445 (Sept. 22, 2000).
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Section 3(38)(B) of Title I of ERISA was also amended to reflect
the above-described changes to the investment adviser registration
requirements under the Advisers Act.\5\ Specifically, section 3(38)(B)
of ERISA requires that, to be an investment manager under Title I, an
investment adviser must: (i) be registered with the SEC under the
Advisers Act of 1940, or (ii) if not registered under such Act by
reason of paragraph (1) of section 203A(a) of such Act, be registered
as an investment adviser under the laws of the state in which it
maintains its principal office and place of business and, at the time
the investment adviser last filed the registration form it most
recently filed with such state in order to maintain its registration
under the laws of such state, it also filed a copy of such form with
the Secretary of Labor.
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\5\ See sec. 308(b)(1) of Title III of NSMIA and Act of November
10, 1997, Sec. 1, Pub. L. 105-72, 111 Stat. 1457.
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To implement the filing requirements in section 3(38)(B)(ii) of
ERISA, the Department announced on January 14, 1998, that state-
registered investment advisers seeking to qualify, or remain qualified,
as investment managers must file a copy of their most recent state
registration form for the state in which it maintains its principal
office and place of business with the Department prior to November 10,
1998, and thereafter file with the Department copies of any subsequent
filings with that state. The ongoing obligation to file copies with the
Department was, however, to be temporary in nature and remain in effect
until a centralized database containing the state registration forms,
or substantially similar information, was available to the
Department.\6\
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\6\ Pub. L. 105-72 provided that a fiduciary shall be treated as
meeting the requirement for filing a copy of the required state
registration form with the Secretary if a copy of the form (or
substantially similar information) is available to the Secretary
from a centralized electronic or other record-keeping database. See
Act of November 10, 1997, Sec. 1(b), Pub. L. 105-72, 111 Stat. 1457.
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The current requirement to file with the Department copies of state
registration filings already accessible to the Department and the
general public via the IAPD Web site places an unnecessary
administrative burden on the regulated community. The requirement also
results in the Department allocating resources to receive, sort, and
store paper copies of information readily available in electronic form.
It is the Department's view that use of the IARD as a centralized
electronic database would improve the ability of the Department, plan
fiduciaries, and plan participants and beneficiaries to readily access
registration information regarding investment advisers eligible to be
investment managers of ERISA-covered plans. As noted above, not only
does the SEC require electronic filing through the IARD for
registration under the Advisers Act, but most states also require IARD
filing for compliance with state investment adviser registration
requirements. While a few states do not make electronic filing through
the IARD mandatory, as noted above, all states permit investment
advisers to use the IARD to satisfy registration requirements. As
described more fully below, the Department believes the majority of
investment managers of ERISA-covered plans already file registration
forms electronically through the IARD under the Advisers Act or under
applicable state securities laws. In the Department's view, the
benefits to plan trustees, plan participants and beneficiaries, and the
Department of this proposed regulation outweigh the relatively small
incremental cost that some investment managers may incur to file state
registration filings through the IARD.
B. Summary of the Proposed Regulation
The proposed regulation would add Sec. 2510.3-38 to title 29 of
the Code of Federal Regulations. Section 2510.3-38(a) would describe
the general filing requirement with the Secretary set forth in section
3(38)(B)(ii) applicable to state-registered investment advisers seeking
to become or remain investment managers under Title I of ERISA. The
regulation would also make clear that its purpose is to establish the
exclusive means to satisfy that filing obligation. Section 2510.3-38(b)
would provide that, for a state-registered investment adviser to
satisfy the filing requirement in section 3(38)(B)(ii) of ERISA, it
must electronically file the required registration forms through the
IARD. Section 2510.3-38(b) would also provide that submitting a copy of
state registration forms to the Secretary does not constitute
compliance with section 3(38)(B)(ii) of ERISA. Section 2510.3-38(c)
would define the term ``Investment Adviser Registration Depository''
and ``IARD'' for purposes of the regulation as the centralized
electronic depository described in 17 CFR 275.203-1. Finally, Sec.
2510.3-38(d) would provide a cross-reference to the SEC Internet site
at http://www.sec.gov/iard for information on filing investment advisor
registration forms with the IARD.
C. Effective Date and Interim Reliance
This regulation is proposed to be effective 60 days after
publication of a final rule in the Federal Register. If adopted, the
proposed regulation would be applicable to investment adviser
registration filings due after the effective date of the final
regulation. Until the effective date of the final regulation,
investment advisers seeking to obtain or maintain investment manager
status under Title I of ERISA will be treated as having met the filing
obligations with the Secretary of Labor described in section
3(38)(B)(ii) of ERISA for any registration filing due on or after the
date the proposed regulation is published in the Federal Register if
they satisfy the conditions of the proposed regulation.
D. Regulatory Impact Analysis
Summary
The Department has undertaken this proposed rulemaking for the
purpose of establishing a single and readily accessible source of
consistent information about the registration of investment advisers
that are investment managers by virtue of meeting the requirements of
section 3(38)(B)(ii) of ERISA. The Department believes the regulation,
if implemented as proposed, would benefit plan fiduciaries, investment
advisers, and ultimately the participants and beneficiaries of employee
benefit plans. Although the anticipated benefits of the proposal are
not quantified here, they are expected to more than justify its
relatively modest estimated cost.
The estimated cost of the implementation of electronic registration
through the IARD for approximately 500 advisers that submitted copies
of their state registrations to the Secretary of Labor, and that
currently register in only those states that do not mandate IARD
filing, is just under $400,000. Ongoing annual costs are estimated at
$50,000. These costs will be offset by efficiency gains for plan
fiduciaries and for investment advisers that wish to be appointed by
plan fiduciaries. As a result of the electronic registration
requirement, plan fiduciaries will be able to access a single source of
registration information regardless of the size or location of the
adviser, and advisers may more readily demonstrate their eligibility to
be investment managers in order to gain appointments by plan
fiduciaries. Over time, these investment managers may also reduce the
handling of paper and the time required to complete the Form ADV, which
is the joint SEC and state registration form that is also currently
[[Page 68712]]
accepted by all the states for State registration purposes. Electronic
availability of registration information will also support better and
more transparent decision making with respect to the appointment of
investment managers, which ultimately benefits the participants and
beneficiaries of the plans involved.
Discussion
The proposal would benefit plan fiduciaries that wish to appoint an
investment manager pursuant to section 402(c)(3) of ERISA. Under
section 405(d)(1) of ERISA, plan fiduciaries are not liable for the
acts or omissions of the investment manager, and have no obligation to
invest assets subject to management by the investment manager. The
centralized source of readily accessible registration information
offered by the IARD will help plan fiduciaries more efficiently locate
information needed to determine whether advisers they may consider
appointing are eligible to be an investment manager under ERISA. The
source and format of information will no longer differ based on the
size or principal business location of the adviser.
Uniform use of the IARD for all advisers who wish to be or remain
as investment managers under ERISA will benefit these advisers as well.
The change to electronic filing will not change the incentives for
investment advisers to become investment managers under ERISA, but
should promote increased efficiency for doing so. Advisers are not
required to be an investment manager to conduct advisory activities for
any customer. The Department assumes that an adviser's decision whether
to meet the definition of investment manager under ERISA is based on
factors unrelated to the form or format of their registration. It is
therefore expected that those state-registered advisers who filed paper
copies of their state registration forms with the Secretary chose to do
so to gain an advantage in securing appointments by plan fiduciaries.
In any case, this proposed regulation will not change the content
of the filings for these advisers because all states accept the joint
SEC and state filing form (Form ADV) for state registration, and with
certain exceptions, all of the copies submitted to the Secretary were
made on Form ADV.\7\ Mandatory use of the IARD will, however, change
the format and manner in which the information is transmitted. While
the Department expects advisers to incur a cost to establish a
procedure for electronic filing through the IARD plus an annual fee,
the change to an electronic format and transmission method is expected
to be more efficient and less costly over time. Use of the IARD will
reduce the paper handling, filing, and mailing costs associated with
providing copies to the State or States as well as to the Secretary,
and reduce handling to obtain and reproduce signatures. The SEC cited
similar efficiency gains in its regulatory impact analysis of the final
rule implementing mandatory electronic filing for federally regulated
advisers. Securities and Exchange Commission, Electronic Filing by
Investment Advisers; Final Rule, 65 FR 57438, Sept. 22, 2000.
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\7\ Several exceptions were observed; in those cases, the
adviser submitted a copy of the State's action on their
registration, such as a license or approval form, rather than the
registration form itself. In each case, other advisers' filings for
the same State were examined to confirm that the state did accept
Form ADV filings.
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The proposed regulation will directly affect only those investment
advisers who wish to become or remain as investment managers under
section 3(38) of ERISA, who generally have $25 million or less under
management and consequently do not register with the SEC, and who
register only in states that do not mandate use of the IARD to satisfy
state registration requirements. Copies of registration forms submitted
to the Secretary by State-registered investment advisers indicate that
about 500 State-registered advisers have registered in only a non-IARD
state.\8\ Prior to the implementation of the IARD and many States'
decisions to mandate use of the IARD to meet state adviser registration
requirements, about 1,500 advisers provided paper copies of their state
registration forms to the Secretary. Based on the data contained in
those filings, about 1,000 of these already have the capability to file
electronically because they are required to register in states that
mandate use of the IARD. The Department therefore assumes that this
proposed regulation would affect only those advisers that register only
in non-IARD states.
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\8\ California, Florida, Kentucky, South Carolina, and West
Virginia at the time of this writing.
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Under existing requirements, State-registered advisers incur a
State registration filing fee with every State in which they are
required to register, plus postage and handling fees for their
submissions. Such fees vary by State. Most if not all of the 500
advisers potentially affected by this proposed regulation now register
in only one state. When advisers registered only in non-IARD States
register through the IARD, the appropriate state registration fee will
be forwarded to the state, such that there will be no net change in
state filing fees.
The Advisers Act and Form ADV allow for the requirement that states
be provided registration statements. To facilitate state registration,
the registrant checks the appropriate boxes on the form for each
applicable state, and the IARD then distributes the required
information electronically to those states. States will be unaffected
because they will continue to receive existing fees, although they will
be transmitted in a different manner.
These advisers would, however, newly incur the IARD initial filing
fee of $150 for advisers of the size under consideration here, and an
annual filing fee of $100. It is also expected that the 500 state-
registered advisers will incur a cost for the set-up of the electronic
filing capability, and an expenditure of time to adjust internal
procedures and put existing information into an electronic format.
Filing fees for the first year are expected to total $75,000 in the
first year and $50,000 in each subsequent year for these advisers.
The cost of the electronic filing set-up is not known. The SEC did
not quantify the cost of set-up in the final rule cited above that
pertained to mandatory use of the IARD for registration with the SEC.
However, for the purpose of this discussion, the cost for establishment
of electronic filing capability has been estimated to be $500, or
$250,000 for the 500 advisers affected. This is a one-time cost based
on available information on annual fees charged to SEC registrants by
commercial providers of service in the industry.\9\ An examination of a
sample of the 500 individual filings showed that many of the advisers
in question already use the software of a single provider for
completing their Form ADV. Because this provider performs services to
IARD filers who are currently SEC registrants as well, we have assumed
that their range of services includes a method of facilitating
electronic filing. It is also assumed that all advisers make use of
electronic technology in the normal course of business and will not be
required to make substantial technological changes as a result of this
proposal.
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\9\ Such fees are used here as a proxy only; the fees do not
pertain specifically to electronic set-up or transmission.
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A one-time cost is also estimated for the time required for the
adviser to adjust its internal procedures to input data electronically,
if necessary. A comparison of a sample of the paper
[[Page 68713]]
filings received with IARD data indicated that these advisers had not
also filed electronically with IARD. It seems likely that many advisers
already prepare the forms electronically, regardless of whether they
submit them electronically. To account for preparation for electronic
transmission, it has been estimated that the advisers will incur the
cost of two hours of a financial professional's time at $68 per hour,
for a cost of $136 per adviser and a total of $68,000.
The estimated one-time cost of this proposal totals $393,000. The
ongoing cost of maintaining registration information and completing and
filing Form ADV is not accounted for here because the advisers prepare
and file such forms to meet state registration requirements and would
continue to do so without regard to this proposed regulation. The
ongoing incremental cost of this proposal is therefore $100 per adviser
per year, or $50,000.
The Department considered alternatives to this proposal, including
issuing no guidance and implementing a standard that would provide the
adviser an option to either file a print copy of its state registration
or make use of the IARD. The value of greater efficiency through the
elimination of dual sources of registration information and promotion
of greater accessibility of consistent information through electronic
methods was considered to outweigh the relatively modest estimated cost
of about $800 per adviser in the first year, and $100 per adviser in
each subsequent year. As a result, the Department elected to issue this
proposal and seek public comment on its views.
Executive Order 12866
Under Executive Order 12866, the Department must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f), the order defines a
``significant regulatory action'' as an action that is likely to result
in a rule (1) having an annual effect on the economy of $100 million or
more, or adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, it has been
determined that this action is ``significant'' within the meaning of
section 3(f)(4) of the Executive Order and has therefore been reviewed
by OMB. The Department has also undertaken the assessment of the costs
and benefits of this regulatory action presented above.
Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor 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 helps to ensure that requested data
can be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed.
Currently, EBSA is soliciting comments concerning the proposed
information collection request (ICR) included in this Notice of
Proposed Rulemaking concerning Electronic Registration Requirements for
Investment Advisers to be Investment Managers Under Title I of ERISA
(ERISA Investment Manager Electronic Registration). A copy of the ICR
may be obtained by contacting the individual identified in the PRA
Addresses section below.
The Department has submitted a copy of the proposed information
collection to OMB in accordance with 44 U.S.C. 3507(d) for review of
its information collections. The Department and OMB are particularly
interested in comments that:
[sbull] Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
[sbull] 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;
[sbull] Enhance the quality, utility, and clarity of the
information to be collected; and
[sbull] 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., 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; Attention: Desk Officer for the
Employee Benefits Security Administration. Although comments may be
submitted through February 9, 2004, OMB requests that comments be
received within 30 days of publication of the Notice of Proposed
Rulemaking to ensure their consideration.
PRA Addresses: Address requests for copies of the ICR to Joseph S.
Piacentini, Office of Policy and Research, U.S. Department of Labor,
Employee Benefits Security Administration, 200 Constitution Avenue,
NW., Room N-5718, Washington, DC 20210. Telephone (202) 693-8410; Fax:
(202) 219-5333. These are not toll-free numbers.
The Department is issuing these proposed rules to establish the
uniform availability of investment adviser registration information in
a centralized electronic database. The proposed rule would affect
investment advisers that register with the states rather than SEC by
virtue of the requirements of NSMIA, who do not currently register
electronically through the IARD, and who wish to fall within the
definition of investment manager for purposes of ERISA section
3(38)(B). Such advisers currently file a paper copy of the applicable
state registration form with the Secretary of Labor pursuant to section
3(38)(B)(ii) of the statute. The information collection is found in the
proposed regulation at section 2520.3-38(b). The basis for the burden
estimates is found in the discussion above.
Type of Review: New collection.
Agency: Employee Benefits Security Administration, Department of
Labor.
Title: ERISA Investment Manager Electronic Registration.
OMB Number: 1210-0NEW.
Affected Public: Individuals or households; Business or other for-
profit.
Respondents: 500.
Frequency of Response: Annually.
Responses: 500.
Estimated Total Burden Hours: 1,000.
Total Annualized Capital/Startup Costs: $275,000.
Total Burden Cost (Operating and Maintenance): $50,000.
[[Page 68714]]
Total Annualized Cost: $325,000.
After the year of implementation, the startup cost will be fully
defrayed.The ongoing annual operating and maintenance cost will be
$50,000.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, this proposed rule does not
include any federal mandate that may result in expenditures by State,
local, or tribal governments in the aggregate of more than $100
million, or increased expenditures by the private sector of more than
$100 million.
Small Business Regulatory Enforcement Fairness Act
The rule being issued here is subject to the Congressional Review
Act provisions of the Small Business Regulatory Enforcement Fairness
Act of 1996 (5 U.S.C. 801 et seq.) and, if finalized, will be
transmitted to Congress and the Comptroller General for review. The
rule is not a ``major rule'' as that term is defined in 5 U.S.C. 804,
because it is not likely to result in (1) an annual effect on the
economy of $100 million or more; (2) a major increase in costs or
prices for consumers, individual industries, or Federal, State, or
local government agencies, or geographic regions; or (3) significant
adverse effects on competition, employment, investment, productivity,
innovation, or on the ability of United States-based enterprises to
compete with foreign-based enterprises in domestic or export markets.
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 that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency certifies that a proposed rule will not 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. Small
entities include small businesses, organizations and governmental
jurisdictions.
For purposes of analysis under the RFA, EBSA normally considers a
small entity to be an employee benefit plan with fewer than 100
participants, on the basis of the definition found in section 104(a)(2)
of ERISA. However, this proposed regulation pertains to investment
advisers that are prohibited from registering with the SEC pursuant to
section 203(A) of the Advisers Act and SEC rules. This generally
includes those advisers that have assets of less than $25 million under
management. In its final rule relating to Electronic Filing by
Investment Advisers (65 FR 57445, note 86), the SEC states that for
purposes of the Advisers Act and the RFA, an investment adviser
generally is a small entity if (a) it manages assets of less than $25
million reported on its most recent Schedule I to Form ADV, (b) it does
not have total assets of $5 million or more on the last day of the most
recent fiscal year, and (c) it is not in a control relationship with
another investment adviser that is not a small entity (Rule 0-7 under
the Advisers Act).
Because the entities potentially affected by this rule are similar
if not identical to those that fall within the SEC definition of small
entity for RFA purposes, and because the regulation is expected to have
a direct impact on an existing cost of doing business that investment
advisers would assume without regard to this proposal, but no economic
impact that would be passed on to employee benefit plans, the
Department considers it appropriate in this limited circumstance to use
the SEC definition for evaluating potential impacts on small entities.
The Department invites comments on its election to use this definition.
Using this definition, the Department certifies that this proposed
regulation would not have a significant economic impact on a
substantial number of small entities. The factual basis for this
conclusion is described below.
The SEC States that of about 20,000 investment advisers in the
United States, some 12,000 do not file with them. As discussed above,
approximately 500 investment advisers are expected to incur costs under
this regulation. This represents 2.5 percent of the approximately
20,000 advisers doing business in the U.S., or 4 percent of the 12,000
small advisers that do not currently file with the SEC. Thus the number
of advisers that will incur costs under this regulation is substantial
neither in absolute terms nor as a fraction of the universe of all or
of small advisers.
In addition, the economic impact of the proposal is not expected to
be significant for any small entity. Seeking investment manager status
for purposes of ERISA is not mandatory; small advisers presumably make
efforts to meet the terms of the ERISA investment manager definition
only when they compute a net benefit for doing so. The proposed
regulation will mandate electronic submission of small adviser's
registration information, but will not change the content or other
requirements for those registrations. The average cost for affected
advisers is estimated to be small: about $800 in the initial year, and
$100 in each following year. It is possible that some portion of this
cost will be passed on to plans.
On this basis, the Department certifies that this proposed
regulation would not have a significant economic impact on a
substantial number of small entities. The Department invites comments
on the potential impact of this proposed regulation on small entities,
and on ways in which costs may be limited within the stated objectives
of this proposal.
Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires the adherence to specific
criteria by federal agencies in the process of their formulation and
implementation of policies that have substantial direct effects 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. 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. Section 514 of ERISA 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. Although
the requirements in this proposed rule do alter the fundamental
reporting and disclosure requirements of section 3(38)(B) of ERISA with
respect to state-registered investment managers, because the duty of
these state-registered advisers to report to the states exists
independently of ERISA, and the proposed rule merely prescribes that
investment advisers seeking ERISA investment manager status use a
specific filing method that is accepted by all states and available as
a choice in all states for registration purposes, there is
[[Page 68715]]
neither a direct implication for the States, nor is there a direct
effect on the relationship or distribution of power between the
national government and the States. This proposal only affects those
State-registered investment advisers who choose to seek investment
manager status under section 3(38) of ERISA, advisers not seeking such
status are unaffected by this proposed regulation.
Statutory Authority
The proposed regulation would be adopted pursuant to the authority
contained in section 505 of ERISA (Pub. L. 93-406, 88 Stat. 894; 29
U.S.C. 1135), and the Act of November 10, 1997, Sec. 1, Pub. L. 105-72,
111 Stat. 1457, and under Secretary of Labor's Order 1-2003, 68 FR 5374
(Feb. 3, 2003).
List of Subjects in 29 CFR Part 2510
Employee benefit plans, Employee Retirement Income Security Act,
Pensions, Plan assets.
PART 2510--[AMENDED]
1. The authority citation for part 2510 is revised to read as
follows:
Authority: 29 U.S.C. 1002(2), 1002(21), 1002(37), 1002(38),
1002(40), 1031, and 1135; Secretary of Labor's Order 1-2003, 68 FR
5374; Sec. 2510.3-101 also issued under sec. 102 of Reorganization
Plan No. 4 of 1978, 43 FR 47713, 3 CFR, 1978 Comp., p. 332 and E.O.
12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275, and 29 U.S.C. 1135
note. Sec. 2510.3-102 also issued under sec. 102 of Reorganization
Plan No. 4 of 1978, 43 FR 47713, 3 CFR, 1978 Comp., p. 332 and E.O.
12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275. Section 2510.3-38 is
also issued under Sec. 1, Pub. L. 105-72, 111 Stat. 1457.
2. Add Sec. 2510.3-38 to read as follows:
2510.3-38 Filing requirements for State registered investment advisers
to be investment managers.
(a) General. Section 3(38) of the Act sets forth the criteria for a
fiduciary to be an investment manager for purposes of section 405 of
the Act. Subparagraph (B)(ii) of section 3(38) of the Act provides
that, in the case of a fiduciary who is not registered under the
Investment Advisers Act of 1940 by reason of paragraph (1) of section
203A(a) of such Act, the fiduciary must be registered as an investment
adviser under the laws of the State in which it maintains its principal
office and place of business, and, at the time the fiduciary files
registration forms with such State to maintain the fiduciary's
registration under the laws of such State, also files a copy of such
forms with the Secretary of Labor. The purpose of this section is to
set forth the exclusive means for investment advisers to satisfy the
filing obligation with the Secretary described in subparagraph (B)(ii)
of section 3(38) of the Act.
(b) Filing requirement. To satisfy the filing requirement with the
Secretary in section 3(38)(B)(ii) of the Act, a fiduciary must be
registered as an investment adviser with the State in which it
maintains its principal office and place of business and file through
the Investment Adviser Registration Depository (IARD), in accordance
with applicable IARD requirements, the information required to be
registered and maintain the fiduciary's registration as an investment
adviser in such State. Submitting to the Secretary investment adviser
registration forms filed with a State does not constitute compliance
with the filing requirement in section 3(38)(B)(ii) of the Act.
(c) Definitions. For purposes of this section, the term
``Investment Adviser Registration Depository'' or ``IARD'' means the
centralized electronic depository described in 17 CFR 275.203-1.
(d) Cross reference. Information for investment advisers on how to
file through the IARD is available on the Securities and Exchange
Commission Web site at http://www.sec.gov/iard.
Signed at Washington, DC this 3rd day of December, 2003.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. 03-30435 Filed 12-8-03; 8:45 am]
BILLING CODE 4510-29-P
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