What Is PTE 86-128 for a 401(k) Plan?

PTE 86-128 addresses a simple economic conflict: a fiduciary can influence how much a 401(k) trades while the fiduciary—or an affiliated broker—earns more when those trades occur. The exemption can permit specified agency commissions and agency-cross compensation, but only through a structure that gives another independent fiduciary advance authority, recurring cost information and a continuing right to shut the arrangement off.^[1][2]

That makes PTE 86-128 different from the exemptions covered immediately before it.

• INV-152 addressed cross-trades between managed accounts.
• INV-153 addressed principal transactions where the dealer itself is the buyer or seller.
• PTE 86-128 primarily addresses agency execution compensation.

The broker may never own the security.

The conflict can still be prohibited.

Why Can an Ordinary Brokerage Commission Create an ERISA Problem?

Assume an investment manager has discretion over a 401(k) portfolio.

The manager can choose:

• whether to trade
• when to trade
• which broker executes.

Its affiliated broker earns:

$0.04 per share

on every agency execution.

If the manager trades:

1 million shares

the affiliate earns:

$40,000.

If it trades:

5 million shares

the affiliate earns:

$200,000.

The fiduciary controls an activity that can increase affiliated revenue.

That is the conflict.

The Price of the Security Can Be Fair and the Conflict Can Still Exist

Suppose every trade receives an excellent market price.

The affiliated commission is also competitive.

The manager still has an incentive to:

• trade more often
• route more orders to the affiliate
• select strategies with greater turnover.

ERISA Section 406(b) does not focus only on whether the final trade price was fair.^[7]

It also restricts fiduciary conduct where the fiduciary's judgment can be affected by:

its own economic interest.

PTE 86-128 exists because ordinary brokerage economics can become fiduciary self-dealing.

Section 408(b)(2) Does Not Solve That Conflict by Itself

ERISA Section 408(b)(2) and 29 CFR 2550.408b-2 can provide relief for a reasonable arrangement with a party in interest for necessary plan services when no more than reasonable compensation is paid.^[9][10]

That can address the:

service arrangement.

It does not generally provide relief from ERISA Section 406(b)'s fiduciary self-dealing restrictions.

So a transaction can need:

• Section 408(b)(2) analysis for the brokerage service
• PTE 86-128 analysis for the fiduciary compensation conflict.

Those are different legal questions.

What Does PTE 86-128 Cover?

Section II covers three principal categories.^[1][4]

1. Fiduciary causes the plan to pay it for agency execution

A plan fiduciary uses its authority to cause the plan to pay a fee to that person for:

• effecting
• executing

securities transactions as:

agent for the plan.

The transactions cannot be excessive under the circumstances in either:

• amount
• frequency.^[1][4]

2. Fiduciary acts as agent for both sides of an agency cross

The same person represents:

• plan
• other buyer or seller

as agent.

3. Fiduciary receives reasonable agency-cross compensation from another party

The exemption can cover reasonable compensation from one or more other parties to the agency cross.^[1][4]

These are agency relationships.

Agency Means the Broker Is Not the Principal Counterparty

Suppose plan buys stock from:

Investor X.

Broker Y executes the purchase as agent.

Broker Y earns:

commission.

Broker Y does not own the shares as dealer inventory.

That is the basic agency model.

Now suppose Broker Y owns the shares and sells them to the plan.

That is:

principal.

PTE 86-128 is not the ordinary principal-inventory exemption.

INV-153 explains that distinction.

Agency Cross Adds a Second Client

Suppose:

• Plan A wants to buy 50,000 shares
• Customer B wants to sell 50,000 shares
• Broker X acts as agent for both.

Broker X can potentially receive:

• commission from Plan A
• commission from Customer B.

Now the broker owes responsibilities around both sides of the execution.

That creates a:

division of loyalties

that PTE 86-128 expressly requires to be disclosed in covered agency-cross arrangements.^[1][2]

Agency Cross Is Not the Same as INV-152's Cross-Trade

INV-152 discussed ERISA Section 408(b)(19).

That statutory exemption concerns qualifying securities cross-trades where the same investment manager manages the accounts on both sides.

PTE 86-128's:

agency cross

is defined around one person acting as agent for both:

• seller
• buyer.^[1]

The categories can overlap factually in complicated structures.

They are not interchangeable legal terms.

Section 408(b)(19) Has a Different Architecture

The statutory cross-trading route includes features such as:

• Section 3(38) manager
• $100 million plan threshold
• independent current-market price
• written cross-trading policies
• annual compliance review.

PTE 86-128 uses another framework:

• independent authorization
• termination rights
• transaction reporting
• annual summaries
• additional agency-cross disclosure.

Calling both:

cross-trading

without naming the exemption invites mistakes.

The Exemption Primarily Relieves Section 406(b)

PTE 86-128 provides specified relief from fiduciary-conflict restrictions under:

ERISA Section 406(b)

and corresponding Code provisions.^[1][4]

That is narrower than saying:

"the trade is exempt from ERISA."

It is not.

Separate prohibited-transaction provisions can still matter.

A Section 406(a) Problem Can Survive

Suppose the broker acts as agent in a cross.

The plan buys securities from:

Company P.

Company P is a party in interest to the plan.

PTE 86-128 may address the broker-fiduciary's:

commission conflict.

It does not automatically provide relief from Section 406(a)(1)(A)'s restriction on a sale or exchange of property between the plan and a party in interest.^[1][7]

Another exemption would be needed if Section 406(a) applies.

This is one of the most important boundaries in the entire PTE.

One Transaction Can Therefore Need Two Exemption Analyses

Example:

Investment adviser is fiduciary.

Affiliated broker acts as agent.

Counterparty is party in interest.

Potential questions:

Brokerage compensation

Can PTE 86-128 relieve the fiduciary's Section 406(b) conflict?

Underlying security sale

Is there separate relief for the Section 406(a) party-in-interest transaction?

A good compliance memo separates them.

A single sentence stating:

"PTE 86-128 applies"

can be materially incomplete.

The Independent Authorizing Fiduciary Is the Core Control

The ordinary conditions require:

written authorization executed in advance

by a fiduciary of each plan whose assets are involved.^[1][2]

That fiduciary must be:

independent

of the person engaging in the covered transaction.^[1]

The party benefiting from the brokerage arrangement cannot approve the arrangement for itself.

This second-fiduciary structure is the exemption's main governance mechanism.

Independence Is About Judgment, Not Organizational Charts

PTE 86-128 defines independence functionally.

The authorizing fiduciary should not have a relationship or interest that could affect:

best judgment as a fiduciary.^[1]

Suppose an "independent" committee member is:

• financially dependent on the broker
• employed by an affiliate
• subject to another material relationship.

The label:

independent fiduciary

does not cure the underlying conflict.

Independence has to be real.

Authorization Must Come Before the Covered Transactions

The authorization is not supposed to be:

retroactive paperwork.

The broker-fiduciary needs the independent authorization before relying on the ordinary exemption for covered transactions.^[1][2]

That means a plan changing managers or brokers should identify PTE 86-128 during implementation.

Not six months after the first affiliated commission was paid.

The Plan Can Terminate Authorization at Will

The authorization must be:

terminable at will

without penalty to the plan.^[1][2]

That is important economically.

The plan should not have to:

• pay an exit charge
• terminate the entire investment mandate
• wait until contract renewal

simply to stop the covered brokerage arrangement.

Consent only has value if it can be withdrawn.

Annual Reauthorization Is Not the Rule

A common misunderstanding is:

"The fiduciary must affirmatively re-sign PTE 86-128 every year."

The operative exemption instead requires the broker-fiduciary to provide a termination form:

not less than annually.^[1][2]

The form must explain:

• authorization is terminable at will without penalty
• failure to return the form results in continued authorization.^[1]

That is continuing authorization with annual exit notice.

Not mandatory annual re-signing.

This Distinction Matters Operationally

Imagine plan signed authorization in:

2024.

In 2025:

• annual termination form sent
• plan does not return it.

Authorization continues.

In 2026:

• annual form sent again.

No new signature is automatically required solely because another year passed.

The process should still verify that:

• the responsible independent fiduciary remains in place
• the arrangement still makes economic sense.

Legal continuation does not eliminate monitoring.

Preauthorization Information Has a Three-Month Window

Within:

three months before authorization

the authorizing fiduciary must receive reasonably available information needed to decide whether to approve the arrangement.^[1][2]

The materials include, among other things:

• copy of the exemption
• termination form
• description of brokerage placement practices
• other reasonably available information requested by the fiduciary.^[1][2]

This turns the authorization into a diligence decision.

Brokerage Placement Practices Matter

A plan fiduciary should understand:

• how brokers are selected
• when affiliate receives orders
• execution benchmarks
• commission rates
• soft-dollar/research practices where relevant
• routing controls
• exceptions.

A fiduciary cannot evaluate an affiliated brokerage arrangement solely from:

the stated commission rate.

A low commission with poor execution can cost more.

Two Reporting Routes Exist for Transaction Information

The exemption allows an authorized person to provide either:

Route A: transaction confirmations

Confirmation slip for each underlying securities transaction within:

10 business days.^[1][2]

The confirmation contains information referenced to SEC Rule 10b-10.^[11]

Route B: quarterly compilation

At least once every three months and no later than:

45 days

after the relevant period.^[1][2]

The plan does not need both routes for the same reporting function.

It needs a compliant route.

Quarterly Reporting Must Show More Than Trade Count

The quarterly route includes:

• transaction information that otherwise would appear in confirmations
• total securities-transaction charges incurred
• amount retained by the authorized person
• amount paid to other persons for execution or other services.^[1][2]

That separation matters.

Plan fiduciary should know whether:

$100,000 total trading charges

means:

• $100,000 retained by affiliated broker
• $30,000 retained and $70,000 paid to others
• another mix.

Conflict economics become visible only after allocation of the charges is shown.

The 45-Day Deadline Is Specific

Quarter ending:

March 31.

Quarterly report should arrive no later than approximately:

45 days after March 31

under the exemption's timing condition.^[1][2]

A report delivered:

four months later

does not provide the same monitoring value.

Stale transparency is weak transparency.

The authorization structure assumes the independent fiduciary receives information while it can still act.

An Annual Summary Is Required Too

The annual summary must be furnished within:

45 days after the end of the period

to which it relates.^[1][2]

It includes:

• total securities-transaction charges
• charges retained by the authorized person
• charges paid to others
• materially changed brokerage placement practices
• portfolio-turnover information where applicable.^[1][2]

The annual report is not simply a duplicate of quarterly data.

It supports pattern-level monitoring.

Portfolio Turnover Is a Conflict Metric

Suppose:

Year 1

Portfolio turnover:

35%.

Affiliated commissions:

$80,000.

Year 2

Portfolio turnover:

110%.

Affiliated commissions:

$260,000.

Performance and strategy did not materially change.

That does not automatically prove:

churning.

It creates an obvious question:

Why did trading more than triple?

The exemption intentionally makes turnover visible because the fiduciary's revenue can rise with trading activity.

The Turnover Formula Is Detailed

The original exemption specifies a methodology using:

• lesser of aggregate purchases or sales
• average market value of portfolio securities
• annualizing factor based on management period.^[1]

Short-term debt with maturity of one year or less at acquisition is excluded from the specified numerator and denominator calculations.^[1]

A plan fiduciary does not need to recreate the formula every quarter.

It should understand what the reported percentage means.

Turnover Reporting Is Not Required in Every Case

The exemption's turnover-reporting condition does not apply where the authorized person has not exercised discretionary authority over trading in the plan account during the reporting period.^[1]

That makes sense.

Turnover is most probative when the compensated fiduciary can influence:

how much trading occurs.

Where the person merely executes another fiduciary's orders, the conflict is different.

Excessive Trading Is Outside the Covered Agency-Fee Relief

Section II's ordinary agency-fee relief applies only to the extent the securities transactions are not excessive under the circumstances in:

• amount
• frequency.^[1][4]

The original exemption also makes clear that relief does not extend to:

churning.^[1]

Competitive commissions do not cure unnecessary trading.

Ten cheap trades can still be worse than one necessary trade.

Example: Cheap Commission, Expensive Behavior

Affiliate charges:

2 cents per share.

Independent brokers charge:

3 cents.

Plan trades:

20 million extra shares

because strategy turnover is unnecessarily high.

Apparent commission saving:

$200,000

versus the higher rate.

But unnecessary extra trading at 2 cents costs:

$400,000

before:

• spread
• market impact
• opportunity cost.

The cheapest commission rate does not prove economical brokerage.

Agency Cross Requires Additional Conflict Disclosure

For covered agency-cross transactions subject to the ordinary conditions, the preauthorization materials must state that the person effecting or executing the trade will have a:

potentially conflicting division of loyalties and responsibilities

regarding the parties.^[1][2]

That is direct language.

The exemption does not pretend the dual-agency conflict disappears because both parties consent.

It makes the conflict visible.

Annual Dual-Agency Reporting Adds Two Numbers

The annual summary for applicable dual-agency trades must identify:

• total number of agency-cross transactions
• total commissions or other remuneration received or to be received from all sources.^[1][2]

Example:

Crosses:

420

Total remuneration:

$180,000.

Those two numbers can reveal whether the arrangement has become:

• occasional execution convenience
• major revenue channel.

Scale matters.

The Broker Can Earn Compensation From the Other Side

The exemption specifically contemplates reasonable compensation received from one or more other parties to the dual-agency transaction.^[1][4]

That creates another question for the plan:

How much total compensation did the broker earn on both sides?

A $5,000 fee charged to the plan can look modest.

If the broker earned another:

$15,000

from the seller, total transaction economics are:

$20,000.

The annual reporting framework is designed to expose that kind of economics.

Some Dual-Agency Trades Have a Separate Section IV Exception

The exemption contains an exception under which the ordinary Section III conditions do not apply to certain dual-agency executions when the person effecting or executing the trade:

• does not render investment advice to any plan for a fee concerning the transaction
• is not otherwise a fiduciary with investment discretion over plan assets involved
• lacks authority to engage, retain or discharge a fiduciary regarding those assets.^[3]

This is a narrow structural exception.

It should not be turned into:

"dual-agency executions do not require the ordinary PTE conditions."

Most fiduciary advice or discretionary arrangements still need the ordinary condition-by-condition analysis.

Why Does the Exception Exist?

Imagine the broker has a fiduciary role elsewhere but, for this particular dual-agency trade:

• does not advise either plan about the trade
• does not exercise investment discretion
• cannot appoint the relevant fiduciary.

The broker's influence over the investment decision is much smaller.

The exemption therefore treats that structure differently.

Functional fiduciary status matters more than the company name.

DOL Confirmed Advice Fiduciaries Can Use the Agency Exemption

In Advisory Opinion:

2011-08A

DOL concluded that the covered relief is available to persons whose fiduciary status arises solely from rendering investment advice for a fee.^[4]

DOL reasoned that the exemption's term:

fiduciary

is not limited to discretionary asset managers.

That is a useful point in 2026 because the five-part fiduciary-advice test is again operative.

The Advisory Opinion Is Not an Unlimited Commission Permission

The 2011 opinion answers:

Can an investment-advice fiduciary fall within the exemption's eligible fiduciary category?

It does not answer:

Is every commission generated by that advice exempt?

The transaction still must fit:

• Section II
• applicable Section III conditions
• any relevant exceptions
• separate ERISA duties.

Exemption eligibility is not exemption compliance.

The 2016 Amendment Is Not Current Law

In 2016, DOL amended the agency-broker exemption as part of the prior fiduciary-rule package.

The Fifth Circuit later vacated that rule and associated exemption amendments.

In:

2020

DOL issued a technical amendment formally returning the relief to its pre-2016 form.^[5]

The operative pre-2016 version includes the:

2002 trustee amendment.^[3][5]

This history matters because old compliance summaries can still contain 2016 language.

The 2024 Amendment Is Also Vacated

DOL amended this class exemption again in:

2024

alongside the Retirement Security Rule.

Federal courts vacated:

• the rule
• associated PTE amendments.

DOL's current Retirement Security page and March 2026 action confirm that vacatur.^[6]

So the 2024 amended text is not the current operating framework.

The 2026 Version Is the 1986 Exemption as Amended in 2002

The clean current-law statement is:

The 1986 class exemption, as amended in 2002, is the operative framework in 2026.^{[2][3][5][6][12]}

That does not mean nothing happened in:

• 2016
• 2024.

It means those later amendment packages were vacated.

The 2002 trustee amendment survived.

DOL Reconfirmed the Current Requirements in August 2026

On:

August 19, 2026

DOL published a Federal Register notice extending the information collection associated with PTE 86-128.^[2]

The notice describes the current safeguards in unusually practical form:

• advance written authorization
• annual termination form
• preauthorization information within three months
• 10-day confirmations or quarterly reports
• annual summary
• discretionary-trustee commission reporting
• additional agency-cross disclosures.^[2]

That is strong evidence of how DOL currently understands the operative exemption.

The OMB Control Number Is Current

The August 2026 notice identifies:

OMB Control No. 1210-0059

for PTE 86-128.^[2]

The current approval is scheduled to expire:

May 31, 2027.^[2]

That expiration concerns the information-collection approval.

It does not mean PTE 86-128 itself automatically expires on that date.

The distinction is important.

The 2002 Amendment Opened the Door for Discretionary Trustees

Before the 2002 amendment, discretionary trustees generally could not use the ordinary fee-receiving structure under PTE 86-128.

The amendment allowed a trustee other than a nondiscretionary trustee—or its affiliate—to use fiduciary authority to cause the plan to pay agency execution fees, subject to added safeguards.^[3]

This reflected consolidation in financial services:

• trustee
• investment-management affiliate
• brokerage affiliate

could sit in one corporate group.

The amendment did not remove the conflict.

It added conditions.

A Discretionary Trustee Generally Needs a $50 Million Plan

Section III(h), added in 2002, provides that a trustee other than a nondiscretionary trustee may engage in a covered transaction with a plan that has total net assets of at least:

$50 million.^[3]

This is a plan-size threshold.

It is not merely:

• amount managed by trustee
• amount traded
• brokerage account size.

The plan's total net assets matter.

Example: $40 Million Plan

Plan total net assets:

$40 million.

Bank is discretionary trustee.

Affiliated broker wants to receive agency commissions under the ordinary trustee route.

The plan does not satisfy the:

$50 million

threshold.^[3]

The bank cannot simply count:

• other unrelated clients
• its own assets
• assets managed elsewhere

to fix the plan's size.

The exact exception architecture would need separate analysis.

Pooled Funds Have a Special $50 Million Test

For a pooled fund, the 2002 amendment says the $50 million condition is met if:

50% or more

of the beneficial units are held by plans having total net assets of at least:

$50 million.^[3]

That means not every participating plan must independently exceed the threshold.

The test looks at the composition of the pooled fund.

Example: Pooled Fund

Fund:

$1 billion.

Beneficial ownership:

• 60% held by plans each exceeding $50 million
• 40% held by smaller plans.

The pooled-fund portion of the trustee size rule can be satisfied because at least half the beneficial interests are held by qualifying large plans.^[3]

The remaining PTE conditions still apply.

Controlled-Group Plans Can Use a Master-Trust Aggregation Rule

The 2002 amendment also permits aggregation where:

• plans are maintained by one employer or controlled group
• assets are pooled for investment in a single master trust.^[3]

Example:

Plan A:

$20 million

Plan B:

$15 million

Plan C:

$25 million

Same controlled group.

Single master trust:

$60 million.

The aggregation rule can satisfy the $50 million threshold if its conditions are met.^[3]

This is not general aggregation of unrelated plans.

Discretionary Trustees Have Extra Annual Commission Reporting

DOL's August 2026 notice describes the current requirement for a discretionary trustee to provide an annual report separating commissions paid to:

• affiliated brokers
• non-affiliated brokers.^[2]

The comparison uses:

• total dollar commissions
• cents-per-share measures.^[2]

That is exactly the comparison an independent fiduciary needs.

It can show whether the affiliate is receiving:

• disproportionate volume
• higher rates
• unusual economics.

Example: Affiliate vs. Unaffiliated Brokers

Annual data:

Affiliated broker

Commissions:

$350,000

Average:

4.5 cents/share

Unaffiliated brokers

Commissions:

$500,000

Average:

2.8 cents/share

The affiliated broker can still be justified if it handles:

• harder securities
• foreign markets
• specialized execution.

But the difference demands explanation.

The annual disclosure makes the conflict measurable.

Pooled Funds Have Additional Conflict Controls

PTE 86-128 contains special rules for pooled investment funds.^[1]

Those rules recognize a practical problem:

A pooled vehicle can contain:

• many unaffiliated plans
• a plan covering employees of the manager or affiliate.

That creates an internal-benefit concern.

The exemption's pooled-fund framework includes limits and authorization mechanics designed to control that risk.

Manager-Employee Plans Can Trigger 20% and 5% Limits

For specified pooled arrangements involving plans covering employees of the pool manager or affiliates, the original exemption includes limits such as:

• employee-plan interests not exceeding 20% of pooled-fund assets under the applicable structure
• commissions received from relevant pooled funds not exceeding 5% of the manager's aggregate brokerage commissions from all sources for the fiscal year.^[1]

Those numbers address:

• concentration
• self-benefit.

They are not general caps on every PTE 86-128 brokerage arrangement.

Profit Recapture Is a Different Route

The exemption also contains a:

recapture of profits

concept.^[1][4]

Under specified circumstances, a person otherwise restricted from ordinary reliance can return or credit to the plan the profits earned in connection with the covered securities transactions.

Economic effect:

brokerage activity occurs → profit is not retained by conflicted fiduciary → profit is credited back to plan.

Removing the retained economic benefit changes the conflict.

Profit Recapture Is Not the Same as a Discount

Suppose affiliated broker charges:

$100,000

and credits:

$30,000

back.

That is not necessarily full profit recapture.

Profit means more than:

gross commission.

The exemption's definition accounts for reasonable or necessary expenses properly allocated to performing the transactions.^[1]

A recapture program needs an actual accounting methodology.

Administrator and Employer Restrictions Still Matter

Section III(a), after the 2002 trustee amendment, generally bars ordinary reliance where the person engaging in the covered transaction is:

• plan administrator
• employer whose employees are covered.^[3]

Limited routes such as profit recapture can change the analysis.

A plan sponsor cannot simply create an internal brokerage desk, collect commissions from its own plan and cite PTE 86-128 without testing the specific conditions.

Nondiscretionary Trustee and Discretionary Trustee Are Different

A:

nondiscretionary trustee

provides limited custodial/nondiscretionary trust functions.

A:

discretionary trustee

can make investment decisions or exercise broader authority.

The 2002 amendment's additional:

• $50 million threshold
• affiliated/unaffiliated commission reporting

target the higher-conflict discretionary-trustee role.^[3]

Do not apply those rules mechanically to every custodian called:

trustee.

Brokerage Selection Still Has to Be Prudent

PTE 86-128 removes specified prohibited-transaction barriers.

It does not answer:

Was this broker a prudent choice?

ERISA Section 404 still requires:

• prudence
• loyalty
• proper purpose.^[8]

A fiduciary should evaluate affiliated brokerage using evidence such as:

• execution quality
• commission rate
• liquidity access
• market impact
• service quality
• error rates.

An exempt affiliated broker can still be a poor broker.

Best Execution Is a Separate Standard

Where securities-law best-execution duties apply, the broker or adviser must satisfy those requirements independently.

PTE 86-128 does not say:

commission under 5 cents = best execution.

Execution quality can include:

• price
• speed
• likelihood
• size
• liquidity
• opportunity for price improvement
• total transaction cost.

Commission is only one component.

Zero Commission Does Not Eliminate Every Conflict

Modern markets sometimes display:

$0 commission.

A fiduciary arrangement can still create economic incentives through:

• spread
• routing payments
• bundled services
• research
• affiliated revenue
• platform economics.

PTE 86-128 is specifically about defined covered compensation structures.

Fiduciary monitoring should examine total economics even when the visible commission is zero.

Directed Brokerage Can Change Who Owns the Decision

Suppose plan sponsor instructs investment manager:

Use Broker Z.

Now distinguish:

• who selected Broker Z
• who controls trading frequency
• who receives compensation
• whether manager can trade away when execution is poor.

A directed-brokerage instruction can shift parts of the fiduciary decision.

It does not erase execution duties or exemption analysis automatically.

The documents and actual discretion matter.

Soft-Dollar and Research Economics Deserve Attention

Brokerage commissions can sometimes support:

• execution
• research
• related services

under securities-law frameworks such as Exchange Act Section 28(e), when applicable.

PTE 86-128 annual disclosure historically includes information designed to help the authorizing fiduciary understand brokerage placement practices and related economics.^[1]

A plan should know whether higher commissions purchase:

• better execution
• legitimate research value
• something primarily beneficial to the manager.

The distinction matters to loyalty.

Example: Affiliated Broker Wins 80% of Trades

Manager routes:

80%

of commission-bearing equity trades to affiliate.

Affiliate commission:

3.5 cents/share.

Other brokers:

2.9 cents/share.

Manager claims affiliate offers:

• better small-cap liquidity
• faster fills.

Useful monitoring would compare:

• execution shortfall
• spread capture
• fill rate
• adverse selection
• commission
• trade type.

If the affiliate only appears better because commission rate is ignored, the analysis is incomplete.

Example: Turnover Doubles

Year 1:

• turnover 45%
• affiliated commissions $100,000.

Year 2:

• turnover 90%
• affiliated commissions $205,000.

Benchmark and mandate remain unchanged.

The committee should ask:

• strategy change?
• cash flows?
• tax positioning irrelevant in qualified plan?
• index turnover?
• manager personnel change?
• revenue incentive?

The turnover report exists so the fiduciary can ask that question.

Example: Agency Cross With Party in Interest

Plan buys stock from:

service provider S

through fiduciary broker acting as agent for both sides.

Broker receives:

• $4,000 from plan
• $5,000 from S.

PTE 86-128 can potentially address:

• broker's dual-agency conflict
• commission economics

if its conditions are met.

But S is a party in interest.

The underlying sale can still require separate relief under Section 406(a).^[1][7]

One exemption does not automatically cover both layers.

Example: Investment-Advice Fiduciary Uses Affiliate

Adviser recommends:

sell Fund A, buy ETF B.

Affiliated broker executes both agency trades for commission.

Under DOL Advisory Opinion 2011-08A, investment-advice fiduciary status does not itself make PTE 86-128 unavailable for covered transactions.^[4]

The firm still needs to satisfy:

• applicable authorization
• disclosure
• reporting
• other PTE conditions
• current fiduciary rules.

The advisory opinion answers status eligibility.

Not transaction quality.

Example: Discretionary Trustee of $150 Million Plan

Bank serves as discretionary trustee.

Plan assets:

$150 million.

Affiliated broker executes listed-equity trades.

The $50 million trustee threshold is satisfied.^[3]

The bank still must satisfy applicable PTE conditions, including:

• independent authorization
• transaction reporting
• annual summary
• extra annual affiliated/unaffiliated commission information.^[2][3]

Plan size opens the route.

It does not complete it.

PTE 86-128 vs. PTE 75-1 vs. Section 408(b)(19)

Pick the exemption from the transaction capacity.

Not from the broker's brand.

Confirmation Route vs. Quarterly Route

A plan can prefer one route operationally.

The exemption permits both.

Ordinary Fiduciary Broker vs. Discretionary Trustee

The trustee role adds protections because it combines more fiduciary authority with brokerage economics.

PTE 86-128 Agency Cross vs. Section 408(b)(19) Cross-Trade

Similar execution mechanics.

Different legal architecture.

Exempt Does Not Mean Prudent

Exemption compliance is one layer.

What Should the Independent Fiduciary Review Before Authorization?

1. Who is receiving the brokerage compensation?
2. Why is that person a fiduciary?
3. What authority can increase trading volume?
4. Is the broker affiliated with the fiduciary?
5. What transaction types are covered?
6. Will agency crosses occur?
7. What commissions or fees are expected?
8. How are brokers selected?
9. What execution benchmarks are used?
10. What information will be reported quarterly or by confirmation?
11. What will the annual summary contain?
12. Who monitors portfolio turnover?
13. How is authorization terminated?
14. If a trustee is involved, does the $50 million test apply?
15. Are separate Section 406(a) exemptions needed for any counterparties?

The authorization should be a transaction-cost governance decision.

Not a signature exercise.

What Should Ongoing Monitoring Test?

Trading volume

• turnover
• trade count
• changes from prior periods.

Affiliated brokerage

• share of volume
• commissions
• cents/share
• execution quality.

Agency crosses

• number
• total remuneration
• counterparties
• conflicts.

Reporting

• 10-day confirmations or timely quarterly compilation
• 45-day deadlines
• annual summary
• annual termination form.

Trustee conditions

• plan size
• pooled-fund composition
• affiliated/unaffiliated commission comparison.

Separate legal issues

• party-in-interest counterparties
• Section 408(b)(2)
• other exemptions.

A clean PTE file should explain both:

why the arrangement is exempt

and:

why the arrangement still makes sense economically.

Frequently Asked Questions

What is PTE 86-128?

A DOL class exemption that permits specified fiduciaries to receive compensation for effecting or executing securities transactions as agent for a plan and permits specified agency-cross activity when the applicable conditions are satisfied.^[1][2]

Is PTE 86-128 a principal-transaction exemption?

No. Ordinary dealer principal trades belong in a different analysis, commonly involving PTE 75-1 Part II or another applicable exemption. INV-153 covers that distinction.

Why is an agency commission prohibited if the commission is reasonable?

Because the fiduciary can use fiduciary authority to generate compensation for itself or an affiliate. Reasonableness does not by itself eliminate the Section 406(b) self-interest problem.

Does Section 408(b)(2) solve the same problem?

No. Section 408(b)(2) can address reasonable necessary service arrangements, but it does not generally relieve Section 406(b) fiduciary self-dealing.^[9][10]

Who authorizes PTE 86-128?

A fiduciary independent of the person engaging in the covered transaction generally provides advance written authorization.^[1][2]

Does authorization have to be renewed every year?

Not necessarily. The operative exemption requires an annual termination form explaining that authorization is terminable at will and that failure to return the form results in continued authorization.^[1][2]

Can the plan terminate authorization?

Yes. The authorization must be terminable at will without penalty.^[1]

What must be provided before authorization?

Within three months before authorization, the independent fiduciary receives reasonably available information needed for the decision, including the exemption, termination form and brokerage placement practices.^[1][2]

How quickly are confirmations required?

The confirmation route requires a confirmation for each underlying securities transaction within 10 business days, containing the referenced Rule 10b-10 information.^[1][2]

What is the quarterly alternative?

At least every three months, no later than 45 days after the period, the broker can provide a compiled report containing transaction information and securities-transaction charges.^[1][2]

Is there also an annual report?

Yes. The authorizing fiduciary receives an annual summary within 45 days after the relevant period.^[1]

Why is portfolio turnover reported?

Because a fiduciary whose compensation increases with trading can have an incentive to generate unnecessary activity. Turnover helps the independent fiduciary monitor that conflict.

Does PTE 86-128 protect churning?

No. Covered agency transactions cannot be excessive in amount or frequency, and the exemption does not protect churning.^[1]

What extra disclosure applies to an agency cross?

Applicable preauthorization disclosure identifies the broker's potentially conflicting division of loyalties, and the annual summary reports the number of agency crosses and total remuneration.^[1][2]

Can an investment-advice fiduciary rely on PTE 86-128?

DOL Advisory Opinion 2011-08A says yes for covered transactions, subject to the exemption's conditions.^[4]

Can a discretionary trustee rely on it?

Yes under the 2002 amendment if the applicable conditions are satisfied, including the $50 million plan-size rule for the ordinary discretionary-trustee route and additional annual commission reporting.^[2][3]

What is the $50 million threshold?

A discretionary trustee generally may engage in a covered transaction with a plan having at least $50 million in total net assets under Section III(h).^[3]

Can related plans aggregate?

The 2002 amendment provides a controlled-group master-trust aggregation rule when the specified conditions are satisfied.^[3]

Are the 2016 amendments current?

No. They were vacated, and DOL formally restored the exemption to its pre-2016 form in 2020.^[5]

Are the 2024 amendments current?

No. The 2024 Retirement Security PTE amendments were vacated by final court judgments, which DOL acknowledged in 2026.^[6]

What version applies in 2026?

The operative framework is PTE 86-128 as granted in 1986 and amended in 2002.^{[2][3][5][6][12]}

Does PTE 86-128 make affiliated brokerage prudent?

No. ERISA Section 404 still requires a prudent, loyal process, and applicable best-execution duties remain separate.^[8]

PTE 86-128 Review Test

Identify the fiduciary whose authority creates the compensation conflict → identify the broker receiving agency compensation → confirm whether broker and fiduciary are the same person or affiliates under the PTE → classify the transaction as agency execution, agency cross, principal trade or another cross-trade structure → identify the specific Section 406(b) problem → determine whether a separate Section 406(a) or Section 408(b)(2) issue remains → identify an independent authorizing fiduciary → deliver required information within the three-month preauthorization window → obtain written advance authorization → preserve at-will, no-penalty termination → send the annual termination form → use transaction confirmations within 10 business days or the quarterly-report alternative within 45 days → deliver the annual summary within 45 days → review turnover and affiliated commission trends → for agency crosses, disclose divided loyalties and report annual cross counts/remuneration → if a discretionary trustee is involved, test the $50 million rule and applicable pooled/master-trust treatment → provide the trustee's annual affiliated-versus-unaffiliated commission comparison → test any pooled-fund special rules → confirm the arrangement has not drifted into excessive trading or churning → evaluate brokerage selection and execution quality separately under Section 404 and applicable securities law → use the operative 1986/2002 exemption, not vacated 2016 or 2024 amendment text

The useful question is not:

"Did the plan authorize affiliated brokerage?"

It is:

"Did an independent fiduciary authorize the exact conflict, receive enough information to monitor it, retain a real right to terminate it, and verify that the trading and execution economics continue to benefit the plan?"

That is the control system PTE 86-128 is built around.

Sources & References

1. U.S. Department of Labor — Employee Benefits Security Administration: Prohibited Transaction Exemption 86-128 — https://www.dol.gov/node/64504
2. U.S. Department of Labor / Federal Register: ERISA PTE 1986-128 — Extension of Information Collection, 91 FR 53661 (August 19, 2026) — https://www.govinfo.gov/content/pkg/FR-2026-08-19/pdf/2026-16880.pdf
3. U.S. Department of Labor / Federal Register: Amendment to PTE 86-128, 67 FR 64137 (October 17, 2002) — https://www.govinfo.gov/content/pkg/FR-2002-10-17/pdf/02-26424.pdf
4. U.S. Department of Labor — Employee Benefits Security Administration: Advisory Opinion 2011-08A — https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2011-08a
5. U.S. Department of Labor / Federal Register: Conflict of Interest Rule—Retirement Investment Advice: Notice of Court Vacatur, 85 FR 40589 (July 7, 2020) — https://www.federalregister.gov/documents/2020/07/07/2020-14260/conflict-of-interest-rule-retirement-investment-advice-notice-of-court-vacatur/
6. U.S. Department of Labor — Employee Benefits Security Administration: Retirement Security Rule — Notice of Court Vacatur — https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/erisa/retirement-security
7. Legal Information Institute / U.S. Code: 29 U.S.C. §1106 — Prohibited Transactions — https://www.law.cornell.edu/uscode/text/29/1106
8. Legal Information Institute / U.S. Code: 29 U.S.C. §1104 — Fiduciary Duties — https://www.law.cornell.edu/uscode/text/29/1104
9. Legal Information Institute / U.S. Code: 29 U.S.C. §1108 — Exemptions From Prohibited Transactions — https://www.law.cornell.edu/uscode/text/29/1108
10. Electronic Code of Federal Regulations / Legal Information Institute: 29 CFR §2550.408b-2 — General Statutory Exemption for Services — https://www.law.cornell.edu/cfr/text/29/2550.408b-2
11. Electronic Code of Federal Regulations / Legal Information Institute: 17 CFR §240.10b-10 — Confirmation of Transactions — https://www.law.cornell.edu/cfr/text/17/240.10b-10
12. U.S. Department of Labor — Employee Benefits Security Administration: Class Exemptions — PTE 1986-128 — https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/class

Educational Disclaimer

ROIStreet publishes educational content about retirement-plan brokerage, fiduciary compensation, agency transactions, agency crosses and ERISA prohibited-transaction exemptions. This article is not legal, fiduciary, securities, tax, investment, brokerage or plan-administration advice. PTE 86-128 is highly technical. Availability depends on the fiduciary's actual authority, broker relationship, transaction capacity, compensation, plan size where applicable, independent authorization, disclosures, reports, counterparties and any separate prohibited-transaction provisions. Court decisions have vacated two later amendment packages, so current primary sources should be checked before relying on materials written under the 2016 or 2024 versions.

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