Department of Labor, Employee Benefits Security Administration: 18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016-01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02)

B-329764: Feb 9, 2018

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(202) 512-8156
jonessa@gao.gov

 

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GAO reviewed the Department of Labor, Employee Benefits Security Administration's (Labor) new rule on 18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016-01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02); Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24). GAO found that (1) the final rule (a) extends the transition period under sections II and IX of the Best Interest Contract Exemption and section VII of the Class Exemption for Principal Transactions in Certain Assets between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs for 18 months; and (b) delays the applicability of certain amendments to Prohibited Transaction Exemption 84-24 for the same period; and (2) Labor complied with applicable requirements in promulgating the rule.

B-329764

February 9, 2018

The Honorable Lamar Alexander
Chairman
The Honorable Patty Murray
Ranking Member
Committee on Health, Education, Labor, and Pensions
United States Senate

The Honorable Virginia Foxx
Chairman
The Honorable Robert C. "Bobby" Scott
Ranking Member
Committee on Education and the Workforce
House of Representatives

Subject: Department of Labor, Employee Benefits Security Administration: 18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016-01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02); Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24)

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a major rule promulgated by the Department of Labor, Employee Benefits Security Administration, (Labor) entitled "18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016-01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02); Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24)" (ZRIN: 1210-ZA27).  We received the rule on January 26, 2018.  It was published in the Federal Register as an "extension of the transition period for PTE amendments" on November 29, 2017.  82 Fed. Reg. 56,545.  Our research shows that Congress received the rule on November 29, 2017.

The final rule extends the transition period under sections II and IX of the Best Interest Contract Exemption and section VII of the Class Exemption for Principal Transactions in Certain Assets between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs for 18 months.  It also delays the applicability of certain amendments to Prohibited Transaction Exemption 84-24 for the same period.  The former transition period was from June 9, 2017, to January 1, 2018.  The new transition period ends on July 1, 2019, rather than on January 1, 2018.

Enclosed is our assessment of Labor's compliance with the procedural steps required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule.  Our review of the procedural steps taken indicates that Labor complied with the applicable requirements.

If you have any questions about this report or wish to contact GAO officials responsible for the evaluation work relating to the subject matter of the rule, please contact Shirley A. Jones, Assistant General Counsel, at (202) 512-8156.

  signed

Robert J. Cramer

Managing Associate General Counsel

Enclosure

cc: Jeanne Klinefelter Wilson
Acting Assistant Secretary, Employee Benefits
  Security Administration

  Department of Labor

ENCLOSURE

REPORT UNDER 5 U.S.C. § 801(a)(2)(A) ON A MAJOR RULE
ISSUED BY THE
DEPARTMENT OF LABOR,
EMPLOYEE BENEFITS SECURITY ADMINISTRATION
ENTITLED
"18-MONTH EXTENSION OF TRANSITION PERIOD AND DELAY OF APPLICABILITY DATES; BEST INTEREST CONTRACT EXEMPTION (PTE 2016-01); CLASS EXEMPTION FOR PRINCIPAL TRANSACTIONS IN CERTAIN ASSETS BETWEEN INVESTMENT ADVICE FIDUCIARIES AND EMPLOYEE BENEFIT PLANS AND IRAS (PTE 2016-02); PROHIBITED TRANSACTION EXEMPTION 84-24 FOR CERTAIN TRANSACTIONS INVOLVING INSURANCE AGENTS AND BROKERS, PENSION CONSULTANTS, INSURANCE COMPANIES, AND INVESTMENT COMPANY PRINCIPAL UNDERWRITERS (PTE 84-24)"
(ZRIN: 1210-ZA27)

(i) Cost-benefit analysis

The Department of Labor (Labor) concluded that this final rule is justified, insofar as avoiding the market disruption that would occur if regulated parties incur costs to comply quickly with conditions or requirements Labor subsequently revises or repeals and the resultant significant consumer confusion justifies any attendant investor losses.  In discussing potential cost savings, Labor stated that it cannot determine at this time the degree to which the infrastructure that affected firms have already established to ensure compliance would be sufficient to facilitate compliance with regulatory requirements if they are modified in the future.

(ii) Agency actions relevant to the Regulatory Flexibility Act (RFA), 5 U.S.C. §§ 603-605, 607, and 609

Labor certified that the final rule will not have a significant economic impact on a substantial number of small entities.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. §§ 1532-1535

Labor determined that this final rule does not include any federal mandate that Labor expects would result in such expenditures by state, local, or tribal governments, or the private sector.  Labor also does not expect that the delay will have any material economic impacts on state, local, or tribal governments, or on health, safety, or the natural environment.

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

On August 31, 2017, Labor published a proposal to extend the current special transition period from January 1, 2018, to July 1, 2019.  82 Fed. Reg. 41,365.  Labor received approximately 145 comment letters and responded to comments in this final rule.

Paperwork Reduction Act (PRA), 44 U.S.C. §§ 3501-3520

Labor determined that this final rule contains provisions related to information collection requirements under the Act.  According to Labor, the Office of Management and Budget (OMB) has previously approved these information collections.  Labor stated that it is not modifying the substance of the information collections, but the current OMB approval periods of the information collection requirements expire before the new applicability date.  Therefore, many of the information collections will remain inactive for the remainder of the current approval periods.  Labor estimated that the information collection requirement entitled "Best interest Contract Exemption" (OMB Control Number 1210-0156) would have a total burden of 2,125,573 hours over a 3-year period with a cost of $2,468,487,766; that the information collection requirement entitled "Prohibited Transaction Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs" (OMB Control Number 1210-0157) would have a total burden of 45,872 hours over a 3-year period with a cost of $1,955,369,661; and that the information collection requirement entitled "Prohibited Transaction Exemption (PTE) 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies and Investment Company Principal Underwriters" (OMB Control Number 1210-0158) would have a total annual burden of 172,301 hours with a cost of $1,319,353.

Statutory authorization for the rule

Labor promulgated this final rule under the authority of section 1108(a) of title 29 and section 4975(c)(2) of title 26, United States Code.

Executive Order No. 12,866 (Regulatory Planning and Review)

Labor determined that this final rule is an economically significant action within the meaning of the Order, because it would likely have an effect on the economy of $100 million in at least one year.

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