§ 1108. Exemptions from prohibited transactions
(a)
Grant of exemptions
The Secretary shall establish an exemption procedure for purposes of this subsection. Pursuant to such procedure, he may grant a conditional or unconditional exemption of any fiduciary or transaction, or class of fiduciaries or transactions, from all or part of the restrictions imposed by sections
1106 and
1107
(a) of this title. Action under this subsection may be taken only after consultation and coordination with the Secretary of the Treasury. An exemption granted under this section shall not relieve a fiduciary from any other applicable provision of this chapter. The Secretary may not grant an exemption under this subsection unless he finds that such exemption is—
Before granting an exemption under this subsection from section
1106
(a) or
1107
(a) of this title, the Secretary shall publish notice in the Federal Register of the pendency of the exemption, shall require that adequate notice be given to interested persons, and shall afford interested persons opportunity to present views. The Secretary may not grant an exemption under this subsection from section
1106
(b) of this title unless he affords an opportunity for a hearing and makes a determination on the record with respect to the findings required by paragraphs (1), (2), and (3) of this subsection.
(b)
Enumeration of transactions exempted from section
1106 prohibitions
The prohibitions provided in section
1106 of this title shall not apply to any of the following transactions:
(1)
Any loans made by the plan to parties in interest who are participants or beneficiaries of the plan if such loans
(B)
are not made available to highly compensated employees (within the meaning of section
414
(q) of title
26) in an amount greater than the amount made available to other employees,
(E)
are adequately secured. A loan made by a plan shall not fail to meet the requirements of the preceding sentence by reason of a loan repayment suspension described under section
414
(u)(4) of title
26.
(2)
Contracting or making reasonable arrangements with a party in interest for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor.
(3)
A loan to an employee stock ownership plan (as defined in section
1107
(d)(6) of this title), if—
(4)
The investment of all or part of a plan’s assets in deposits which bear a reasonable interest rate in a bank or similar financial institution supervised by the United States or a State, if such bank or other institution is a fiduciary of such plan and if—
(5)
Any contract for life insurance, health insurance, or annuities with one or more insurers which are qualified to do business in a State, if the plan pays no more than adequate consideration, and if each such insurer or insurers is—
(B)
a party in interest which is wholly owned (directly or indirectly) by the employer maintaining the plan, or by any person which is a party in interest with respect to the plan, but only if the total premiums and annuity considerations written by such insurers for life insurance, health insurance, or annuities for all plans (and their employers) with respect to which such insurers are parties in interest (not including premiums or annuity considerations written by the employer maintaining the plan) do not exceed 5 percent of the total premiums and annuity considerations written for all lines of insurance in that year by such insurers (not including premiums or annuity considerations written by the employer maintaining the plan).
(6)
The providing of any ancillary service by a bank or similar financial institution supervised by the United States or a State, if such bank or other institution is a fiduciary of such plan, and if—
(A)
such bank or similar financial institution has adopted adequate internal safeguards which assure that the providing of such ancillary service is consistent with sound banking and financial practice, as determined by Federal or State supervisory authority, and
(B)
the extent to which such ancillary service is provided is subject to specific guidelines issued by such bank or similar financial institution (as determined by the Secretary after consultation with Federal and State supervisory authority), and adherence to such guidelines would reasonably preclude such bank or similar financial institution from providing such ancillary service
(ii)
in a manner that would be inconsistent with the best interests of participants and beneficiaries of employee benefit plans.
Such ancillary services shall not be provided at more than reasonable compensation.
(7)
The exercise of a privilege to convert securities, to the extent provided in regulations of the Secretary, but only if the plan receives no less than adequate consideration pursuant to such conversion.
(8)
Any transaction between a plan and
(i)
a common or collective trust fund or pooled investment fund maintained by a party in interest which is a bank or trust company supervised by a State or Federal agency or
(9)
The making by a fiduciary of a distribution of the assets of the plan in accordance with the terms of the plan if such assets are distributed in the same manner as provided under section
1344 of this title (relating to allocation of assets).
(10)
Any transaction required or permitted under part 1 of subtitle E of subchapter III of this chapter.
(11)
A merger of multiemployer plans, or the transfer of assets or liabilities between multiemployer plans, determined by the Pension Benefit Guaranty Corporation to meet the requirements of section
1411 of this title.
(12)
The sale by a plan to a party in interest on or after December 18, 1987, of any stock, if—
(A)
the requirements of paragraphs (1) and (2) of subsection (e) of this section are met with respect to such stock,
(13)
Any transfer made before January 1, 2014, of excess pension assets from a defined benefit plan to a retiree health account in a qualified transfer permitted under section
420 of title
26 (as in effect on August 17, 2006).
(14)
Any transaction in connection with the provision of investment advice described in section
1002
(21)(A)(ii) of this title to a participant or beneficiary of an individual account plan that permits such participant or beneficiary to direct the investment of assets in their individual account, if—
(A)
the transaction is—
(i)
the provision of the investment advice to the participant or beneficiary of the plan with respect to a security or other property available as an investment under the plan,
(ii)
the acquisition, holding, or sale of a security or other property available as an investment under the plan pursuant to the investment advice, or
(iii)
the direct or indirect receipt of fees or other compensation by the fiduciary adviser or an affiliate thereof (or any employee, agent, or registered representative of the fiduciary adviser or affiliate) in connection with the provision of the advice or in connection with an acquisition, holding, or sale of a security or other property available as an investment under the plan pursuant to the investment advice; and
(15)
(A)
Any transaction involving the purchase or sale of securities, or other property (as determined by the Secretary), between a plan and a party in interest (other than a fiduciary described in section
1002
(21)(A) of this title) with respect to a plan if—
(ii)
at the time of the transaction, the interest of the plan (together with the interests of any other plans maintained by the same plan sponsor), does not exceed 10 percent of the aggregate size of the block trade,
(iii)
the terms of the transaction, including the price, are at least as favorable to the plan as an arm’s length [1] transaction, and
(iv)
the compensation associated with the purchase and sale is not greater than the compensation associated with an arm’s length [1] transaction with an unrelated party.
(16)
Any transaction involving the purchase or sale of securities, or other property (as determined by the Secretary), between a plan and a party in interest if—
(A)
the transaction is executed through an electronic communication network, alternative trading system, or similar execution system or trading venue subject to regulation and oversight by—
(B)
either—
(C)
the price and compensation associated with the purchase and sale are not greater than the price and compensation associated with an arm’s length [1] transaction with an unrelated party,
(17)
(A)
Transactions described in subparagraphs (A), (B), and (D) of section
1106
(a)(1) of this title between a plan and a person that is a party in interest other than a fiduciary (or an affiliate) who has or exercises any discretionary authority or control with respect to the investment of the plan assets involved in the transaction or renders investment advice (within the meaning of section
1002
(21)(A)(ii) of this title) with respect to those assets, solely by reason of providing services to the plan or solely by reason of a relationship to such a service provider described in subparagraph (F), (G), (H), or (I) of section
1002
(14) of this title, or both, but only if in connection with such transaction the plan receives no less, nor pays no more, than adequate consideration.
(B)
For purposes of this paragraph, the term “adequate consideration” means—
(i)
in the case of a security for which there is a generally recognized market—
(I)
the price of the security prevailing on a national securities exchange which is registered under section 6 of the Securities Exchange Act of 1934 [15 U.S.C. 78f], taking into account factors such as the size of the transaction and marketability of the security, or
(II)
if the security is not traded on such a national securities exchange, a price not less favorable to the plan than the offering price for the security as established by the current bid and asked prices quoted by persons independent of the issuer and of the party in interest, taking into account factors such as the size of the transaction and marketability of the security, and
(18)
Foreign exchange transactions.—
Any foreign exchange transactions, between a bank or broker-dealer (or any affiliate of either), and a plan (as defined in section
1002
(3) of this title) with respect to which such bank or broker-dealer (or affiliate) is a trustee, custodian, fiduciary, or other party in interest, if—
(A)
the transaction is in connection with the purchase, holding, or sale of securities or other investment assets (other than a foreign exchange transaction unrelated to any other investment in securities or other investment assets),
(B)
at the time the foreign exchange transaction is entered into, the terms of the transaction are not less favorable to the plan than the terms generally available in comparable arm’s length [1] foreign exchange transactions between unrelated parties, or the terms afforded by the bank or broker-dealer (or any affiliate of either) in comparable arm’s-length foreign exchange transactions involving unrelated parties,
(C)
the exchange rate used by such bank or broker-dealer (or affiliate) for a particular foreign exchange transaction does not deviate by more than 3 percent from the interbank bid and asked rates for transactions of comparable size and maturity at the time of the transaction as displayed on an independent service that reports rates of exchange in the foreign currency market for such currency, and
(19)
Cross trading.—
Any transaction described in sections
1106
(a)(1)(A) and
1106
(b)(2) of this title involving the purchase and sale of a security between a plan and any other account managed by the same investment manager, if—
(A)
the transaction is a purchase or sale, for no consideration other than cash payment against prompt delivery of a security for which market quotations are readily available,
(B)
the transaction is effected at the independent current market price of the security (within the meaning of section
270.17a–7(b) of title
17, Code of Federal Regulations),
(C)
no brokerage commission, fee (except for customary transfer fees, the fact of which is disclosed pursuant to subparagraph (D)), or other remuneration is paid in connection with the transaction,
(D)
a fiduciary (other than the investment manager engaging in the cross-trades or any affiliate) for each plan participating in the transaction authorizes in advance of any cross-trades (in a document that is separate from any other written agreement of the parties) the investment manager to engage in cross trades at the investment manager’s discretion, after such fiduciary has received disclosure regarding the conditions under which cross trades may take place (but only if such disclosure is separate from any other agreement or disclosure involving the asset management relationship), including the written policies and procedures of the investment manager described in subparagraph (H),
(E)
each plan participating in the transaction has assets of at least $100,000,000, except that if the assets of a plan are invested in a master trust containing the assets of plans maintained by employers in the same controlled group (as defined in section
1107
(d)(7) of this title), the master trust has assets of at least $100,000,000,
(F)
the investment manager provides to the plan fiduciary who authorized cross trading under subparagraph (D) a quarterly report detailing all cross trades executed by the investment manager in which the plan participated during such quarter, including the following information, as applicable:
(G)
the investment manager does not base its fee schedule on the plan’s consent to cross trading, and no other service (other than the investment opportunities and cost savings available through a cross trade) is conditioned on the plan’s consent to cross trading,
(H)
the investment manager has adopted, and cross-trades are effected in accordance with, written cross-trading policies and procedures that are fair and equitable to all accounts participating in the cross-trading program, and that include a description of the manager’s pricing policies and procedures, and the manager’s policies and procedures for allocating cross trades in an objective manner among accounts participating in the cross-trading program, and
(I)
the investment manager has designated an individual responsible for periodically reviewing such purchases and sales to ensure compliance with the written policies and procedures described in subparagraph (H), and following such review, the individual shall issue an annual written report no later than 90 days following the period to which it relates signed under penalty of perjury to the plan fiduciary who authorized cross trading under subparagraph (D) describing the steps performed during the course of the review, the level of compliance, and any specific instances of non-compliance.
The written report under subparagraph (I) shall also notify the plan fiduciary of the plan’s right to terminate participation in the investment manager’s cross-trading program at any time.
(20)
(A)
Except as provided in subparagraphs (B) and (C), a transaction described in section
1106
(a) of this title in connection with the acquisition, holding, or disposition of any security or commodity, if the transaction is corrected before the end of the correction period.
(B)
Subparagraph (A) does not apply to any transaction between a plan and a plan sponsor or its affiliates that involves the acquisition or sale of an employer security (as defined in section
1107
(d)(1) of this title) or the acquisition, sale, or lease of employer real property (as defined in section
1107
(d)(2) of this title).
(C)
In the case of any fiduciary or other party in interest (or any other person knowingly participating in such transaction), subparagraph (A) does not apply to any transaction if, at the time the transaction occurs, such fiduciary or party in interest (or other person) knew (or reasonably should have known) that the transaction would (without regard to this paragraph) constitute a violation of section
1106
(a) of this title.
(D)
For purposes of this paragraph, the term “correction period” means, in connection with a fiduciary or party in interest (or other person knowingly participating in the transaction), the 14-day period beginning on the date on which such fiduciary or party in interest (or other person) discovers, or reasonably should have discovered, that the transaction would (without regard to this paragraph) constitute a violation of section
1106
(a) of this title.
(E)
For purposes of this paragraph—
(i)
The term “security” has the meaning given such term by section
475
(c)(2) of title
26 (without regard to subparagraph (F)(iii) and the last sentence thereof).
(ii)
The term “commodity” has the meaning given such term by section
475
(e)(2) of title
26 (without regard to subparagraph (D)(iii) thereof).
(c)
Fiduciary benefits and compensation not prohibited by section
1106
Nothing in section
1106 of this title shall be construed to prohibit any fiduciary from—
(1)
receiving any benefit to which he may be entitled as a participant or beneficiary in the plan, so long as the benefit is computed and paid on a basis which is consistent with the terms of the plan as applied to all other participants and beneficiaries;
(2)
receiving any reasonable compensation for services rendered, or for the reimbursement of expenses properly and actually incurred, in the performance of his duties with the plan; except that no person so serving who already receives full time pay from an employer or an association of employers, whose employees are participants in the plan, or from an employee organization whose members are participants in such plan shall receive compensation from such plan, except for reimbursement of expenses properly and actually incurred; or
(d)
Owner-employees; family members; shareholder employees
(1)
Section
1107
(b) of this title and subsections (b), (c), and (e) of this section shall not apply to a transaction in which a plan directly or indirectly—
any person who is with respect to the plan an owner-employee (as defined in section
401
(c)(3) of title
26), a member of the family (as defined in section 267(c)(4) of such title) of any such owner-employee, or any corporation in which any such owner-employee owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock entitled to vote or 50 percent or more of the total value of shares of all classes of stock of the corporation.
(2)
(A)
For purposes of paragraph (1), the following shall be treated as owner-employees:
(B)
Paragraph (1)(C) shall not apply to a transaction which consists of a sale of employer securities to an employee stock ownership plan (as defined in section
1107
(d)(6) of this title) by a shareholder-employee, a member of the family (as defined in section 267(c)(4) of such title) of any such owner-employee, or a corporation in which such a shareholder-employee owns stock representing a 50 percent or greater interest described in paragraph (1).
(3)
For purposes of paragraph (2), the term “shareholder-employee” means an employee or officer of an S corporation (as defined in section 1361(a)(1) of such title) who owns (or is considered as owning within the meaning of section 318(a)(1) of such title) more than 5 percent of the outstanding stock of the corporation on any day during the taxable year of such corporation.
(e)
Acquisition or sale by plan of qualifying employer securities; acquisition, sale, or lease by plan of qualifying employer real property
Sections
1106 and
1107 of this title shall not apply to the acquisition or sale by a plan of qualifying employer securities (as defined in section
1107
(d)(5) of this title) or acquisition, sale or lease by a plan of qualifying employer real property (as defined in section
1107
(d)(4) of this title)—
(1)
if such acquisition, sale, or lease is for adequate consideration (or in the case of a marketable obligation, at a price not less favorable to the plan than the price determined under section
1107
(e)(1) of this title),
(g)
Provision of investment advice to participant and beneficiaries
(1)
In general
The prohibitions provided in section
1106 of this title shall not apply to transactions described in subsection (b)(14) if the investment advice provided by a fiduciary adviser is provided under an eligible investment advice arrangement.
(2)
Eligible investment advice arrangement
For purposes of this subsection, the term “eligible investment advice arrangement” means an arrangement—
(A)
which either—
(i)
provides that any fees (including any commission or other compensation) received by the fiduciary adviser for investment advice or with respect to the sale, holding, or acquisition of any security or other property for purposes of investment of plan assets do not vary depending on the basis of any investment option selected, or
(3)
Investment advice program using computer model
(A)
In general
An investment advice program meets the requirements of this paragraph if the requirements of subparagraphs (B), (C), and (D) are met.
(B)
Computer model
The requirements of this subparagraph are met if the investment advice provided under the investment advice program is provided pursuant to a computer model that—
(i)
applies generally accepted investment theories that take into account the historic returns of different asset classes over defined periods of time,
(ii)
utilizes relevant information about the participant, which may include age, life expectancy, retirement age, risk tolerance, other assets or sources of income, and preferences as to certain types of investments,
(iii)
utilizes prescribed objective criteria to provide asset allocation portfolios comprised of investment options available under the plan,
(C)
Certification
(i)
In general
The requirements of this subparagraph are met with respect to any investment advice program if an eligible investment expert certifies, prior to the utilization of the computer model and in accordance with rules prescribed by the Secretary, that the computer model meets the requirements of subparagraph (B).
(ii)
Renewal of certifications
If, as determined under regulations prescribed by the Secretary, there are material modifications to a computer model, the requirements of this subparagraph are met only if a certification described in clause (i) is obtained with respect to the computer model as so modified.
(D)
Exclusivity of recommendation
The requirements of this subparagraph are met with respect to any investment advice program if—
(i)
the only investment advice provided under the program is the advice generated by the computer model described in subparagraph (B), and
(ii)
any transaction described in subsection (b)(14)(A)(ii) occurs solely at the direction of the participant or beneficiary.
Nothing in the preceding sentence shall preclude the participant or beneficiary from requesting investment advice other than that described in subparagraph (A), but only if such request has not been solicited by any person connected with carrying out the arrangement.
(4)
Express authorization by separate fiduciary
The requirements of this paragraph are met with respect to an arrangement if the arrangement is expressly authorized by a plan fiduciary other than the person offering the investment advice program, any person providing investment options under the plan, or any affiliate of either.
(5)
Annual audit
The requirements of this paragraph are met if an independent auditor, who has appropriate technical training or experience and proficiency and so represents in writing—
(A)
conducts an annual audit of the arrangement for compliance with the requirements of this subsection, and
(B)
following completion of the annual audit, issues a written report to the fiduciary who authorized use of the arrangement which presents its specific findings regarding compliance of the arrangement with the requirements of this subsection.
For purposes of this paragraph, an auditor is considered independent if it is not related to the person offering the arrangement to the plan and is not related to any person providing investment options under the plan.
(6)
Disclosure
The requirements of this paragraph are met if—
(A)
the fiduciary adviser provides to a participant or a beneficiary before the initial provision of the investment advice with regard to any security or other property offered as an investment option, a written notification (which may consist of notification by means of electronic communication)—
(i)
of the role of any party that has a material affiliation or contractual relationship with the fiduciary adviser in the development of the investment advice program and in the selection of investment options available under the plan,
(ii)
of the past performance and historical rates of return of the investment options available under the plan,
(iii)
of all fees or other compensation relating to the advice that the fiduciary adviser or any affiliate thereof is to receive (including compensation provided by any third party) in connection with the provision of the advice or in connection with the sale, acquisition, or holding of the security or other property,
(iv)
of any material affiliation or contractual relationship of the fiduciary adviser or affiliates thereof in the security or other property,
(v)
[2] the manner, and under what circumstances, any participant or beneficiary information provided under the arrangement will be used or disclosed,
(vi)
of the types of services provided by the fiduciary adviser in connection with the provision of investment advice by the fiduciary adviser,
(B)
at all times during the provision of advisory services to the participant or beneficiary, the fiduciary adviser—
(i)
maintains the information described in subparagraph (A) in accurate form and in the manner described in paragraph (8),
(ii)
provides, without charge, accurate information to the recipient of the advice no less frequently than annually,
(7)
Other conditions
The requirements of this paragraph are met if—
(A)
the fiduciary adviser provides appropriate disclosure, in connection with the sale, acquisition, or holding of the security or other property, in accordance with all applicable securities laws,
(B)
the sale, acquisition, or holding occurs solely at the direction of the recipient of the advice,