[Federal Register Volume 63, Number 203 (Wednesday, October 21, 1998)]
[Notices]
[Pages 56231-56233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28213]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application Number: D-10554]
Proposed 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 Individual Have Been Established or Maintained
AGENCY: Pension and Welfare Benefits Administration, U.S. Department of
Labor.
ACTION: Notice of proposed amendment to PTE 97-11.
-----------------------------------------------------------------------
SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed amendment to PTE 97-
11. PTE 97-11 is 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 proposed amendment, if adopted, would affect individuals with
beneficial interests in such plans who receive such services as well as
the broker-dealers who provide such services.
DATES: If adopted, the proposed amendment would be effective as of
January 1, 1998. Written comments and requests for a public hearing
should be received by the Department on or before December 7, 1998.
ADDRESSES: All written comments and requests for a public hearing
(preferably three copies) should be addressed to the U.S. Department of
Labor, Office of Exemption Determinations, Pension and Welfare Benefits
Administration, Room N-5649, 200 Constitution Ave, NW, Washington, DC
20210, (Attention: D-10554)
FOR FURTHER INFORMATION CONTACT: Ms. Allison Padams Lavigne, Office of
Exemption Determinations, Pension and Welfare Benefits Administration,
U.S. Department of Labor, (202) 219-8971, (this is not a toll-free
number).
SUPPLEMENTARY INFORMATION: Notice is hereby given 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.1 The
amendment to PTE 97-11 was requested in an exemption application dated
December 23, 1997 filed on behalf of the Securities Industry
Association (SIA). The SIA is a securities industry trade association
representing the business interests of more than 700 securities firms
in North America which collectively account for ninety percent of the
securities firm revenue in the United States. The members of the SIA
are, among other things, engaged in the business of providing brokerage
and investment advisory services to the public.
---------------------------------------------------------------------------
\1\ 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.
---------------------------------------------------------------------------
The application was filed pursuant to section 408(a) of ERISA and
section 4975(c)(2) of the Code and in accordance with the procedures
set
[[Page 56232]]
forth in 29 CFR 2570, subpart B, (55 FR 32836), August 10, 1990.)
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 SIA has requested an amendment to PTE 97-11 which would expand
the term ``IRA'' as defined in section III(b) of the exemption to
include any IRA (currently existing or that Congress may create in the
future) subject to the provisions of section 408(e) and/or section 4975
of the Code. The Department has decided not to expand the definition of
IRA to include any IRA subject to the provisions of section 408(e) or
section 4975 of the Code because the conditions contained in PTE 97-11
were developed based upon the specific characteristics of the IRAs and
Keogh Plans described in section III(b) and (c), respectively. The
Department does not believe that a sufficient showing has been made
that the safeguards contained in the exemption would adequately address
the concerns that the Department may have with regard to an
unidentified class of IRAs.
In the alternative, the SIA requests that the Department expand the
definition of the term IRA to include Roth IRAs and Education IRAs.
Section III(b) of PTE 97-11 defines the term IRA as 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.
Roth IRAs and Education IRAs were created as part of the Taxpayer
Relief Act of 1997 (TRA) (Pub. L. 105-34, title III, Sec. 302(a),
August 5, 1997, 111 Stat 788). Section 302(a) of the TRA amended the
Code by adding section 408A and section 530 to create Roth IRAs and
Education IRAs, respectively.
Section 408A(a) of the Code provides that, except as provided in
this section, a Roth IRA shall be treated for purposes of this title in
the same manner as an individual retirement plan. Section 408A(b) of
the Code provides that for purposes of this title, the term ``Roth
IRA'' means an individual retirement plan (as defined in section
7701(a)(37)) which is designated at the time of the establishment of
the plan as a Roth IRA.
In Advisory Opinion 98-03A (March 6, 1998), the Department stated
that a Roth IRA which satisfies the definition of an individual
retirement plan contained in section 7701(a)(37)(A) 2 of the
Code is an ``individual retirement account'' described in section
408(a) of the Code for purposes of the definition of the term ``IRA''
contained in section III(b) of PTE 97-11. Therefore, a Roth IRA, as
described above, which is not an employee benefit plan covered by Title
I of ERISA (except for certain SEPs and Simple Retirement Accounts
described in section 408(k) and 408(p) of the Code, respectively) would
be covered by the relief provided in PTE 97-11, if all conditions
therein are met. Thus, section III(b) of PTE 97-11 does not need to be
expanded with respect to Roth IRAs.
---------------------------------------------------------------------------
\2\ Section 7701(a)(37) of the Code defines the term
``individual retirement plan'' to mean: (A) an individual retirement
account described in section 408(a) of the Code, and (B) an
individual retirement annuity described in section 408(b) of the
Code.
---------------------------------------------------------------------------
Section 530(b)(1) of the Code provides in part, that the term
``education individual retirement account'' means a trust created or
organized in the United States exclusively for the purpose of paying
the qualified higher education expenses of the designated beneficiary
of the trust (and designated as an education individual retirement
account at the time created or organized). Section 530(b)(1) further
provides: but only if the written governing instrument creating the
trust meets the following requirements:
(A) No contribution will be accepted--(i) unless it is in cash,
(ii) after the date on which such beneficiary attains age 18, or
(iii) except in the case of rollover contributions, if such
contributions would result in aggregate contributions for the
taxable year exceeding $500; (B) the trustee is a bank (as defined
in section 408(n) of the Code or another person who demonstrates to
the satisfaction of the Secretary that the manner in which that
person will administer the trust will be consistent with the
requirements of this section or who has so demonstrated with respect
to any individual retirement plan; (C) no part of the trust assets
shall not be invested in life insurance contracts; (D) the assets of
the trust shall not be commingled with other property except in a
common trust fund or common investment fund; and (E) upon the death
of the designated beneficiary, any balance to the credit of the
beneficiary shall be distributed within 30 days after the date of
death to the estate of such beneficiary.
The Education IRA is subject to disqualification provisions which
are similar to those in section 408(e)(2) and (4) of the Code which are
applicable to IRAs described in section 408(a) of the Code (traditional
IRAs).3 In addition, as with traditional IRAs, the Education
IRA balance can be transferred to different sponsoring
institutions.4 Further, the TRA amended the definition of
``plans'' as defined in section 4975(e)(1) of the Code to include an
educational IRA described in section 530 of the Code. Based on the
SIA's representations, it appears that Education IRAs share many of the
same characteristics as those IRAs covered by the exemption. Thus, the
Department sees merit in the SIA's request and, accordingly, has
modified the definition of IRA in section III(b) of PTE 97-11 to
include Education IRAs. The Department notes that all of the conditions
of PTE 97-11 must be satisfied with respect to Education IRAs, as with
all other IRAs and Keogh Plans covered by the exemption.
---------------------------------------------------------------------------
\3\ See section 530(e) of the Code.
\4\ See section 530(d)(5) of the Code.
---------------------------------------------------------------------------
Notice to Interested Persons
Because many participants in IRAs and Keogh Plans and broker-
dealers could conceivably be considered interested persons, the only
practical form of notice is publication in the Federal Register.
General Information
The attention of interested persons is directed to the following:
(1) Before an exemption may be granted under section 408(a) of
ERISA and section 4975(c)(2) of the Code, the Department must find that
the exemption 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 proposed amendment if granted, will be 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 exemption is not dispositive of whether the transaction
is in fact a prohibited transaction.
[[Page 56233]]
(3) If granted, the proposed amendment will be applicable to a
transaction only if the conditions specified in the class exemption are
met.
Written Comments and Hearing Request
All interested persons are invited to submit written comments or
requests for a public hearing on the proposed amendment to the address
and within the time period set forth above. All comments will be made a
part of the record. Comments and requests for a hearing should state
the reasons for the writer's interest in the proposed amendment.
Comments received will be available for public inspection with the
referenced application at the above address.
Proposed Amendment
Under 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 Department proposes to
amend PTE 97-11 as set forth below:
Section III(b) is amended to read: ``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.''
Signed at Washington, DC this 6th day of October 1998.
Alan D. Lebowitz,
Deputy Assistant Secretary for Program Operations, Pension and Welfare
Benefits Administration, U.S. Department of Labor.
[FR Doc. 98-28213 Filed 10-20-98; 8:45 am]
BILLING CODE 4510-29-P
