3985 / What is the prohibited transaction exemption that allows life insurance agents, brokers, or pension consultants (including fiduciaries) who are disqualified persons to receive commission or effect transactions related to certain life insurance and annuities?

Administrative Exemption: 84-24

Prohibited Transaction Exemption 84-24¹ provides administrative relief in addition to the statutory provisions. It permits a life insurance agent, broker, or pension consultant and affiliates, including a fiduciary, who is a disqualified person (1) to receive sales commissions for certain insurance and annuity sales to a plan, or (2) to effect a transaction for the purchase of an insurance or annuity contract from an insurance company. The exemption also permits an investment company principal underwriter to effect a transaction for the purchase of an insurance or annuity contract. Furthermore, it allows the purchase of insurance or annuities from an insurance company that is a disqualified person. This class exemption is available only if certain conditions are met.

Notably, advisors must adhere to the impartial conduct standards (Q 3986.1) and are subject to the duties of care and loyalty.  In the 2024 amendment, the DOL added a new section to PTE 84-24 to provide relief for independent insurance agents receiving compensation that would otherwise be prohibited for investment advice transactions, subject to conditions similar to PTE 2020-02.  Unlike PTE 2020-02, the insurance company selling its products through independent agents is not required to provide fiduciary acknowledgment and is not treated as a fiduciary solely because it exercised oversight over independent agents.  Instead, the independent insurance agent is required to acknowledge fiduciary status, and the insurance company is required to exercise supervisory authority over the independent agent with regard to an agent's recommendation of the insurance company's own products.  The remaining provisions of PTE 84-24 remain available for transactions that do not involve advice.²

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Planning Point: Note that the exemption was significantly changed by the Department of Labor Fiduciary Rule, which was scheduled to become effective January 1, 2018 (although the impartial conduct standards were effective June 9, 2017)).³ However, the rule was vacated in the courts in March, 2018, and the DOL has replaced it with a new standard and PTE (see Q and Q 3986.1 for details).  Under the 2024 DOL fiduciary rule, the impartial conduct standards now apply to advisors who take advantage of PTE 84-24 and PTE 2020-02.

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Further, to qualify, the transaction must be effected in the ordinary course of business of the agent, broker, or consultant on terms at least as favorable to the plan as those that would be negotiated in an arm’s length transaction with an unrelated party. The total fees and commissions also must not be in excess of reasonable compensation, determined on a facts and circumstances basis.

Second, the agent, broker, consultant, or insurance company may not act as a plan trustee (other than a nondiscretionary trustee who does not render investment advice with respect to any assets of the plan), plan administrator, a fiduciary authorized to manage, acquire, or dispose of plan assets on a discretionary basis, or an employer, any of whose employees are covered by the plan. PTE 84-24, as amended, extends the same relief to situations where an affiliate of the insurance agent or broker, pension consultant, or investment company principal underwriter is a trustee with investment discretion over plan assets that are not involved in the transaction.⁴

The term affiliates includes (1) any person controlled by or under common control with the agent, broker, consultant, or insurance company, (2) any officer, director, employee, or relative of or a partner in (but not of) the agent, broker, consultant, or insurance company, and (3) any corporation or partnership of which the agent, broker, consultant, or insurance company is an officer, director, or employee, or in which he or she is a partner.

The transaction must be approved, in writing, by an independent fiduciary, who may be the employer. Prior to the sale, the agent, broker, or consultant must disclose to the independent fiduciary:

(1)  the nature of the affiliation between the agent and the insurer whose contract is being recommended;

(2)  any limitations on the agent’s ability to recommend insurance or annuity contracts;

(3)  the amount of sales commission, expressed as a percentage of gross annual premium payments for the first and renewal years; and

(4)  a description of any charges, fees, discounts, penalties, or adjustments that may be imposed in connection with the purchase, holding, exchange, termination, or sale of such contracts.

Finally, the agent, broker, or consultant must retain records relating to the transaction for six years, but no filing is required with either the IRS or the Department of Labor. The records must be available for examination by those two federal agencies, plan participants, beneficiaries, and any employer or employee organization whose employees or members are covered by the plan.

An insurance company that is a service provider or fiduciary solely because it sponsors a master or prototype plan need satisfy only the first set of conditions. An agent, broker, or consultant who is a fiduciary and who sells insurance in connection with the master or prototype plan must meet both sets of conditions.

See Q 3986.1 for a discussion of the new PTE 2020-02 and a detailed discussion of the impartial conduct standards that individuals must now comply with in order to take advantage of PTE 84-24 under the 2024 fiduciary rule.