What Is PTE 97-41 for a 401(k) Plan?

PTE 97-41 addresses one of the clearest conflicts in institutional retirement investing: a bank or registered adviser manages a plan's collective investment fund, owes fiduciary duties to the plan, and also advises the mutual fund that will receive the assets. The exemption can permit an in-kind conversion, but only through a tightly controlled process designed to stop the fiduciary from using client-plan assets to seed, scale or enrich its proprietary fund at the plan's expense.^[1][2][3]

The transaction is narrower than the title may suggest.

It is not:

CIF → any mutual fund.

It is:

outside Client Plan exits the CIF completely → plan's proportional securities and cash move directly into one or more affiliated registered open-end funds → plan receives equal-value fund shares.^[2]

That structure avoids unnecessary liquidation.

It also creates a direct loyalty problem.

Why Would a Bank Convert a CIF Into a Mutual Fund?

A bank collective investment fund can work well for institutional retirement plans.

A mutual fund can offer different advantages:

• broader distribution
• easier platform access
• standardized public disclosure
• operational familiarity
• portability across recordkeepers or custodians
• public NAV and share accounting.

A bank may therefore decide that a strategy currently run as a CIF should migrate to a registered mutual-fund format.

The economics can be legitimate.

The conflict is equally real.

The bank can benefit if:

• proprietary mutual-fund assets increase
• advisory fees increase
• distribution becomes easier
• the fund develops scale
• fixed expenses spread across a larger base.

A fiduciary moving client assets into its own product is not an ordinary arm's-length decision.

The Fiduciary Is on Both Sides of the Decision

Assume Bank A:

• maintains a $2 billion equity CIF
• acts as fiduciary investment manager for participating plans
• launches Mutual Fund M
• serves as investment adviser to Fund M.

Bank A now wants every client plan to exchange its CIF interest for Fund M shares.

The bank is deciding whether plan assets should move.

The bank also earns from the receiving product.

ERISA Section 406(b)(1) restricts a fiduciary from dealing with plan assets in its own interest, and Section 406(b)(2) addresses acting in a transaction for a party whose interests are adverse to the plan.^[7]

PTE 97-41 expressly provides prospective relief from Sections 406(a), 406(b)(1) and 406(b)(2), plus parallel Code provisions, when all conditions are satisfied.^[2]

That is why the exemption matters.

For readability, this article uses conversion fiduciary as shorthand for the Bank or Plan Adviser occupying those dual roles; the exemption's defined terms still control the legal analysis.

PTE 97-41 Is Not Needed for Every CIF Exit

Suppose a plan redeems its CIF units for cash.

An independent committee then invests that cash in an unrelated index fund.

That is not the specialized PTE 97-41 in-kind structure.

The exemption is designed around a fiduciary-managed conversion where:

• CIF assets are transferred in kind
• receiving funds are advised by the same conversion fiduciary
• that bank or adviser is also a Client Plan fiduciary.^[2]

Using the correct exemption starts with classifying the actual transaction.

Current Conversions Use Section II

PTE 97-41 has two temporal sections.

Section I

Retroactive relief for qualifying transactions from:

October 1, 1988 through August 8, 1997.^[2]

Section II

Prospective relief effective:

after August 8, 1997.^[2]

For a conversion occurring now, Section II is the operative framework.

The historical section explains the exemption's origin; it is not the checklist for a new conversion.

The Client Plan Definition Excludes the Fiduciary's Employee Plan

The definition is one of the most important boundaries.

A Client Plan can include:

• pension plan
• welfare benefit plan
• plan described in Code Section 4975(e)(1).

But it does not include an employee benefit plan that the defined bank or adviser establishes or maintains for its own employees.^[2]

That means:

outside client plan ≠ bank's in-house plan.

This distinction prevents one exemption from being stretched across two materially different conflicts.

Why Is an In-House Employee Plan Different?

If the bank's employee plan invests in the bank's proprietary mutual fund, the plan sponsor, asset manager and product provider can all sit inside the same corporate family.

PTE 77-3 was created for that setting.^[4][12]

PTE 97-41 instead protects outside client plans whose fiduciary is the institution leading the conversion.

DOL's 1998 advisory opinion addressed a conversion containing both groups:

• outside client plans relied on PTE 97-41
• bank in-house plans were analyzed under PTE 77-3.^[4]

One conversion event can therefore require more than one exemption.

A CIF Has a Specific Definition Here

For PTE 97-41, a collective investment fund is a common or collective trust fund or pooled investment fund maintained by a qualifying:

• bank, or
• Plan Adviser

for collective investment of assets attributable to:

two or more plans maintained by unrelated employers.^[2]

That last phrase matters.

A single-employer dedicated account is not transformed into a PTE 97-41 CIF because the bank calls it a collective strategy.

The legal definition controls.

The Receiving Fund Must Be a Registered Open-End Fund

The receiving Fund must be an:

open-end management investment company registered under the Investment Company Act of 1940

for which that bank or registered plan adviser serves as investment adviser.^[2]

The adviser may also provide:

• custody
• shareholder servicing
• transfer agency
• another secondary service.^[2]

PTE 97-41 is therefore not a general conversion exemption for private funds, limited partnerships, unregistered trusts or separate accounts.

The receiving vehicle is specific.

The Plan Must Withdraw Completely From the CIF

Section II requires the transfer and purchase to occur in connection with a:

complete withdrawal

of the Client Plan's assets from the CIF.^[2]

This is not a partial reallocation exemption.

Suppose a plan owns:

$100 million

of a bank CIF.

The bank proposes:

• $60 million in-kind conversion to proprietary mutual fund
• $40 million remains in CIF.

That does not match the complete-withdrawal structure.

The phrase should be treated literally.

Why Complete Withdrawal Matters

A full exit creates a clean transition point.

It reduces the possibility that the fiduciary can:

• cherry-pick which assets move
• leave undesirable positions behind
• shift value between the CIF and mutual fund
• manipulate allocation across old and new vehicles.

The exemption then overlays a pro rata asset rule and same-day valuation framework.

Those protections work together.

The Plan Cannot Pay a Sales Commission or Purchase Fee

Section II(a) requires no sales commissions or other fees paid by the Client Plan in connection with purchasing the fund shares.^[2]

That condition addresses an obvious extraction problem.

The bank is already causing the plan to move into a fund the bank advises.

The plan should not also pay a sales charge for entering the product through the conflicted conversion.

This does not mean the fund has no ongoing expenses.

Those expenses are disclosed and tested separately.

Transferred Assets Must Be Marketable Securities or Cash

Section II(b) limits transferred property to:

• securities for which market quotations are readily available
• cash.^[2]

That restriction makes the conversion measurable.

If a CIF owns a bespoke private loan or a nontraded partnership interest, PTE 97-41 does not simply authorize the bank to assign an internal value and contribute it to the mutual fund.

The exemption is built around assets that can be priced under a controlled market-based methodology.

The Normal Rule Is Security-by-Security Pro Rata Allocation

Section II(c) says transferred assets constitute the participating plan's:

pro rata portion of all assets held by the CIF immediately before transfer.^[2]

Suppose a plan represents:

20%

of the CIF.

The clean rule is that the plan receives 20% of:

• Security A
• Security B
• Security C
• cash
• every other transferable position.

Then those plan assets are contributed to the mutual fund in exchange for fund shares.

The bank does not get to select a different basket merely because total dollar value is similar.

Equal Dollar Value Is Not Always Pro Rata

Assume CIF owns:

• $50 million large-cap stock
• $30 million Treasury securities
• $20 million corporate bonds.

Plan owns 10% of CIF.

True pro rata basket:

• $5 million stock
• $3 million Treasuries
• $2 million corporates.

Bank instead gives plan:

• $10 million stock
• no bonds.

Total value is still $10 million.

Asset composition is not pro rata.

That can shift duration, liquidity, credit and portfolio quality among participating plans.

The exemption's default rule prevents that discretion.

Bonds Create an Indivisibility Problem

Exact pro rata allocation is easy with highly divisible equity positions.

Fixed-income securities can be awkward.

Imagine a CIF holds one:

$1 million face-value bond

and five plans each economically own different fractions.

The bond cannot always be split into every mathematically exact entitlement.

For small bond positions, forcing exact allocation can create odd lots, unnecessary sales and trading costs.

PTE 97-41 contains a narrow exception for that problem.

The Fixed-Income Exception Is Capped at 1% of CIF Assets

The bank can allocate specified fixed-income securities among Client Plans based on each plan's pro rata share of the:

aggregate value

of those securities rather than exact ownership of each issue, if the exemption's conditions are met.^[2]

The first condition:

the aggregate value of the securities using this method cannot exceed:

1% of total CIF assets immediately before transfer.^[2]

The denominator is the CIF.

Not the individual plan.

Example: $4 Million Bond Sleeve in a $500 Million CIF

CIF assets:

$500 million.

Fixed-income positions difficult to divide exactly:

$4 million.

Percentage:

$4M ÷ $500M = 0.8%.

The size condition can be satisfied.

The bank still must meet the instrument-similarity conditions.

Now change the small bond sleeve to:

$7 million.

$7M ÷ $500M = 1.4%.

The narrow aggregate-value exception is no longer available for that entire set on the stated facts.

The 1% limit is not a rounding suggestion.

The Bonds Must Match on Three Characteristics

Since May 9, 2022, fixed-income securities using the exception must have the same:

1. coupon rate
2. maturity
3. credit quality.^[2]

This is designed to make the aggregate-value substitution economically close.

Two bonds worth the same amount are not interchangeable merely because both are fixed income.

Credit and cash-flow structure matter.

Same Maturity Does Not Mean Same Credit Quality

Consider two bonds:

Bond A

• 5% coupon
• matures 2031
• U.S. Treasury obligation.

Bond B

• 5% coupon
• matures 2031
• highly leveraged corporate issuer.

Coupon matches.

Maturity matches.

Credit risk does not.

The exemption does not allow the bank to allocate Bond A to one plan and Bond B to another under the 1% exception merely because market values happen to be similar.

The 2022 language requires same credit quality.

What Changed in 2022?

The original exemption used a credit-rating reference in this fixed-income provision.

DOL's 2022 amendment removed mandatory federal reliance on ratings and replaced the condition with:

same credit quality.^[2]

The Department explained that the comparison should use the same metrics for each security.

A fiduciary can consider independent third-party reports or ratings in reaching the conclusion.^[2]

A rating can be evidence.

It is no longer the sole legal label embedded in the condition.

"Same Credit Quality" Requires a Method

A strong file should identify how credit quality was compared.

Possible inputs can include:

• probability of default
• expected loss
• leverage
• coverage ratios
• seniority
• collateral
• issuer financial strength
• market spread
• third-party research
• external ratings.

The important point is consistency.

If one bond is judged on an agency rating while another is judged only on an optimistic internal forecast, the comparison is not apples to apples.

The Plan Must Receive Equal Value in Fund Shares

Section II(d) requires the participating plan to receive fund shares with total net asset value equal to the value of the transferred assets on the transfer date.^[2]

If plan contributes assets worth:

$100 million

it should receive:

$100 million of fund NAV.

Not approximately equivalent shares.

The valuation mechanics are part of the exemption.

Five Basis Points Can Be Real Money

Plan conversion value:

$100 million.

Valuation mismatch:

0.05%, or five basis points.

Economic difference:

$50,000.

On a:

$1 billion

conversion, the same five basis points equals:

$500,000.

That is why precise pricing is not clerical housekeeping.

A conflicted conversion can transfer value invisibly through small pricing differences.

One Security Gets One Valuation

The exemption requires:

• a single valuation for each asset
• all valuations performed in the same manner
• at the close of the same business day
• in accordance with SEC Rule 17a-7
• using pricing sources independent of both the conversion fiduciary and receiving Fund.^[2][6]

The same security should not be valued one way when leaving CIF and another way when entering mutual fund.

That would create a spread inside what is supposed to be a value-neutral conversion.

Why Rule 17a-7 Matters

SEC Rule 17a-7 governs certain transactions between investment companies and affiliated persons, with market-price and procedural requirements.^[6]

PTE 97-41 borrows that valuation architecture.

The point is not that every CIF conversion is itself an ordinary Rule 17a-7 transaction.

The PTE uses Rule 17a-7 pricing principles to constrain a fiduciary who could otherwise influence both sides of the exchange.

Independent Pricing Sources Matter

The valuation sources must be independent of:

• the conversion fiduciary
• receiving Fund.^[2]

Suppose bank's internal trading desk produces the only price for a thinly traded bond.

The same bank manages the CIF, advises the Fund and decides the conversion.

That is too much control over the number determining how much value the plan receives.

Independent market makers or pricing services reduce that risk.

The Independent Fiduciary Must See the Economics Before Approval

Section II(e) requires advance written notice and full written disclosure.^[2][5]

The package includes six core categories.

1. Current prospectus

For each receiving Fund.

2. Fee information

Fees charged to or paid by the plan and receiving Funds to the conversion fiduciary, including the differential between fund fees and what the plan paid in the CIF.

3. Conversion rationale

Why the conversion fiduciary considers the transfer and purchase appropriate for the plan.

4. Investment limitations

Any restrictions on which plan assets may be invested in the Funds.

5. Special-valuation securities

Identity of securities requiring the special paragraph (b)(4) valuation method under Rule 17a-7.

6. Fixed-income exception securities

Identity of bonds allocated using the aggregate-value exception.^[2]

The disclosure is designed to expose both the economics and the mechanics.

Fee Differential Is a Core Fiduciary Fact

Assume the CIF costs the plan:

0.18%.

After conversion, the bank or affiliates receive economics equivalent to:

0.32%.

Difference:

14 basis points.

On $100 million:

$140,000 per year.

Over ten years, ignoring asset growth:

$1.4 million.

A conversion that is value-neutral on Day 1 can materially increase long-term cost.

That is why equal NAV does not settle prudence.

The Bank Must Explain Why the Conversion Is Appropriate

The disclosure package requires that institution to explain why it considers the transaction appropriate for that plan.^[2]

That reason should be specific.

Weak rationale:

"The mutual fund offers enhanced flexibility."

Useful analysis might show:

• recordkeeper requires mutual-fund vehicle
• CIF is being terminated
• expected trading costs are lower through in-kind transfer
• fund provides participant-compatible pricing
• total fees change by a quantified amount
• investment mandate remains materially consistent
• portability improves.

An independent fiduciary should be able to test the claimed benefit.

Prior Written Approval Means Prior

After reviewing the disclosures, the Independent Fiduciary must give:

prior approval in writing

for each purchase of fund shares in exchange for the plan's CIF assets.^[2]

Approval after conversion is not enough.

The fiduciary exists to decide whether the conflicted transfer should occur before assets move.

A board minute ratifying the transaction next quarter does not recreate prior independent review.

"Each Purchase" Is More Specific Than Blanket Consent

If conversion moves assets into:

• Equity Fund A
• Bond Fund B
• Short-Term Fund C

the approval file should identify the actual purchases.

A generic authorization of any proprietary fund conversion the bank later chooses does not fit the transaction-specific architecture.

The independent decision should track the funds and assets actually involved.

Electronic Confirmations Need Separate Prior Approval

If the Independent Fiduciary elects to receive required post-conversion confirmations by:

• facsimile
• electronic mail

the fiduciary must approve that delivery form in writing beforehand.^[2]

This is an operational detail with legal significance because the disclosure process is part of the protection.

Modern delivery technology does not erase an express exemption condition.

The 30-Day Confirmation Is About Pricing Evidence

No later than:

30 days after completion

the conversion fiduciary provides specified confirmation information for each transferred security subject to the rule's paragraph (b)(4) pricing method.^[2]

The confirmation identifies:

• security
• market price as of transfer date
• pricing service or market maker consulted.^[2]

This gives the independent fiduciary an audit trail for assets that required the specified valuation method.

The 105-Day Confirmation Reconciles the Conversion

No later than:

105 days after completion

the institution provides a written before-and-after reconciliation.^[2]

For the CIF side:

• number of CIF units held immediately before transfer
• per-unit value
• total dollar value.

For the mutual-fund side:

• number of Fund shares held immediately after purchase
• per-share NAV
• total dollar amount.^[2]

This allows a simple question:

Did the plan's value survive the conversion intact?

Thirty Days and 105 Days Solve Different Problems

Combining them into one generic conversion confirmation can hide missing information.

A compliance calendar should track both.

Disclosure Continues After Closing

For each Fund in which the plan continues to hold converted shares, the conversion fiduciary must provide:^[2]

At least annually

Updated prospectus.

Upon request

A report or statement describing all fees the Fund pays to the conversion fiduciary.

The fee report can take forms such as:

• recent financial report
• current Statement of Additional Information
• another written statement.^[2]

The conflict does not end when the conversion settles.

The adviser continues earning from the fund.

Total Compensation Must Remain Reasonable

For each participating plan, combine the fees received by the conversion fiduciary for:

• services to Client Plan
• services to receiving Fund in which the plan holds converted shares

cannot exceed:

reasonable compensation

within ERISA Section 408(b)(2).^[2][9][10]

Disclosure does not convert unreasonable compensation into reasonable compensation.

A fiduciary should compare total economics, not one fee line at a time.

Example: Cheap Fund, Expensive Bundle

Mutual-fund advisory economics:

0.15%.

Separate plan advisory fee:

0.25%.

Custody and secondary economics:

0.08%.

Combined relationship:

0.48%.

A marketing slide highlighting only the 0.15% fund fee misses the relevant total.

The PTE's reasonable-compensation condition forces a broader view.

The Plan Cannot Receive Worse Treatment Than Other Shareholders

Section II(j) requires dealings connected to the in-kind transfer and purchase to be on a basis:

no less favorable

than dealings between the Fund and other shareholders.^[2]

That protects against special disadvantages imposed on the plan because the bank controls the process.

Examples include inferior pricing, extra fees, worse valuation or discriminatory mechanics.

Affiliation cannot make the plan a captive customer.

Independent Fiduciary Means More Than "Not the Bank"

The exemption defines independence carefully.^[2]

A fiduciary generally is not independent if it:

• controls the conversion fiduciary
• is controlled by that institution
• is under common control
• has specified officer, director, partner or employee relationships
• has specified relative relationships
• receives personal compensation tied to the transaction.^[2]

The person approving the transfer should not have an economic or organizational reason to favor the bank's proprietary fund.

There Is a Limited Board-Overlap Rule

The definition contains a specific exception.

If a bank/adviser officer, director, partner, employee or specified relative sits on the Independent Fiduciary's board, the relationship does not automatically destroy independence under that paragraph if the person abstains from participation in:

• selection of the participating plan's investment adviser
• approval of purchases or sales between Client Plan and Funds
• transactions described in Sections I and II.^[2]

That is a narrow abstention mechanism.

It should not be generalized into a rule that board overlap is harmless.

PTE 97-41 Coordinates With PTE 77-4

Section III creates an important bridge.^[2][11]

A fund-share purchase complying with Section I or II of PTE 97-41 is:

• treated as a "purchase or sale" for PTE 77-4
• deemed to satisfy paragraphs (a), (d) and (e) of Section II of PTE 77-4.^[2]

That helps because PTE 77-4 addresses investments in affiliated open-end funds where plan-fiduciary and fund-adviser relationships create conflicts.

The two exemptions are complementary.

Section III Does Not Say Every PTE 77-4 Condition Is Satisfied

This is a common overread.

PTE 97-41 names specific PTE 77-4 paragraphs that are deemed satisfied.^[2]

It does not say every other PTE 77-4 condition is irrelevant.

A compliance memo should map the exact cross-reference rather than conclude that one exemption replaces the other entirely.

PTE 97-41 vs. PTE 77-3

PTE 77-3 is for the in-house employee plan of a mutual-fund complex or affiliated organization.

PTE 97-41 excludes bank/adviser employee plans from its Client Plan definition.^[2][4][12]

That 1998 opinion shows both regimes operating in one conversion.^[4]

Valuation Parity Applies Across Outside and In-House Plans

In the 1998 opinion, DOL concluded PTE 77-3 could cover an in-house plan's acquisition of proprietary mutual-fund shares through an in-kind exchange.^[4]

DOL also focused on fairness.

Where outside client plans were converting under PTE 97-41, the valuation methodology used for the affiliated employee plan had to be consistent with the methodology used for outside plans to satisfy PTE 77-3's no-less-favorable condition.^[4]

That prevents a bank from using one pricing standard for employees and another for outside clients.

Same conversion should not have two standards of value.

PTE 77-3 Does Not Automatically Cover Every Conversion Step

The same opinion also drew a boundary.^[4]

PTE 77-3 did not automatically provide relief for prohibited transactions arising from:

• terminating the CIF
• allowing some plans to withdraw
• transferring plan assets held by the CIF.^[4]

It addressed acquisition of proprietary mutual-fund shares by that employee plan.

That lesson applies broadly:

a transaction chain can require more than one exemption.

Do not stop once one step has a PTE citation.

PTE 97-41 vs. PTE 91-38

PTE 91-38 deals with transactions:

inside a bank collective investment fund.

PTE 97-41 deals with:

leaving that fund and moving assets in kind to an affiliated mutual fund.^[1]

The exemptions solve different lifecycle stages of the same institutional vehicle.

Why Convert In Kind Instead of Selling Everything?

Assume CIF holds:

$5 billion

of securities.

Liquidating the portfolio could create:

• bid-ask spreads
• market impact
• brokerage cost
• time out of market
• tracking error
• operational risk.

If the receiving mutual fund will own essentially the same strategy, selling securities only to buy them back can destroy value.

An in-kind conversion can preserve positions.

PTE 97-41 makes that efficiency possible without ignoring the fiduciary conflict.

The Exemption Protects Mechanics, Not Strategy

A bank can execute the mechanics perfectly and still propose a bad conversion.

Suppose:

CIF cost:

0.12%.

New mutual fund:

0.35%.

Investment mandate:

nearly identical.

Recordkeeper can continue supporting CIF.

No meaningful portability improvement.

The bank benefits from a more marketable proprietary fund.

Even if NAV equals transferred value and no commission is charged, the independent fiduciary should ask:

Why should participants pay 23 extra basis points?

PTE compliance does not answer that.

Seed-Capital Motivation Is a Loyalty Risk

Suppose the mutual fund is newly launched with:

$20 million

of assets.

Bank converts outside client CIF assets totaling:

$1.8 billion.

The fund instantly becomes institutionally scaled, easier to market and more economical for sponsor.

That can also benefit clients.

But if the primary purpose is improving bank product economics, the fiduciary conflict is acute.

DOL also warned in the 1998 opinion that a fiduciary must ensure its interest in attracting and retaining mutual-fund investors does not conflict with the plan's interests.^[4][8]

Independent Approval Should Compare the Before and After

A serious review should compare:

CIF

• investment objective
• benchmark
• portfolio
• fees
• liquidity
• valuation
• securities-lending economics
• derivatives
• governance
• portability.

Mutual fund

• same fields
• share class
• distribution costs
• public-fund operating expenses
• cash drag
• prospectus restrictions.

If the only memo says:

"PTE 97-41 conditions satisfied,"

the fiduciary has answered the exemption question but not the investment question.

A Worked Conversion

Client Plan owns:

$100 million

of a:

$500 million

CIF.

Ownership:

20%.

CIF portfolio:

• $300M equities
• $150M Treasuries
• $46M ordinary corporate bonds
• $4M small bond positions meeting fixed-income exception conditions.

Normal plan allocation:

• $60M equities
• $30M Treasuries
• $9.2M ordinary corporates.

For the $4M small-bond sleeve, plan economic share is:

$800,000.

Because total exception sleeve is:

$4M ÷ $500M = 0.8%

the aggregate-value exception can potentially be used if the securities also share required coupon, maturity and credit quality.^[2]

Plan transfers total:

$100 million

of qualifying securities and cash.

If receiving fund NAV is:

$25 per share

plan should receive:

4 million shares.

That is the basic value-neutral conversion.

A One-Basis-Point Error Still Matters

Same $100 million conversion.

If transferred assets are understated by:

0.01%

plan receives $10,000 less value.

Scale the conversion to:

$3 billion

and one basis point equals:

$300,000.

The same-day valuation controls are proportionate to the size of the risk.

What Should the 30-Day File Contain?

For every security subject to that special Rule 17a-7 pricing condition, the file should be able to reconstruct:

• security identifier
• transfer-date price
• independent pricing source
• market maker where used
• calculation
• date and timing of valuation
• corresponding fund-share issuance.

The formal confirmation has specified required elements.^[2]

Internal workpapers should be detailed enough to explain the result years later.

What Should the 105-Day File Prove?

The 105-day confirmation should reconcile:

before

• CIF units
• unit value
• total value

with:

after

• fund shares
• NAV per share
• total value.^[2]

A useful internal control also explains:

• cash residuals
• rounding
• treatment of accrued interest
• fixed-income exception allocations.

The legal condition is a floor.

Operational documentation can go further.

Current OMB Status Confirms the Disclosure Regime Is Still Administered

DOL's current class-exemption page lists PTE 1997-41 with:

OMB Control No. 1210-0104

expiring:

May 31, 2028.^[1]

DOL's 2025 information-collection filing describes the same core requirements:

• advance notice
• fee disclosure
• rationale
• independent approval
• confirmations
• annual prospectuses
• ongoing fee information.^[5]

The process remains administratively active.

May 31, 2028 Is Not a Sunset of PTE 97-41

The date applies to the Paperwork Reduction Act information collection.^[1]

It does not mean the exemption disappears automatically in 2028.

OMB approvals are renewed periodically.

The legal-status file should distinguish substantive PTE text from paperwork authorization.

The 2022 Amendment Is the Main Current-Law Update

DOL's 2022 credit-rating amendments affected six class exemptions, including PTE 97-41.^[2]

For this PTE, the relevant change is narrow:

old credit-rating language in the small fixed-income allocation exception was replaced by the:

same credit quality

standard effective May 9, 2022.^[2]

The rest of the conversion architecture remains recognizable from the 1997 exemption.

A pre-2022 checklist can therefore be mostly right and still be legally outdated on this point.

The ROIStreet PTE 97-41 Review Map

Identify the pooled vehicle → confirm it meets the PTE definition of CIF → confirm receiving vehicle is a registered open-end fund advised by the defined conversion fiduciary → confirm that fiduciary institution also serves the Client Plan → confirm Client Plan is not an in-house employee arrangement of the conversion fiduciary → confirm conversion is tied to complete withdrawal from CIF → prohibit plan-paid sales commission or purchase fee → identify every asset proposed for in-kind transfer → exclude assets lacking readily available market quotations unless cash → calculate plan's exact pro rata entitlement to CIF assets → identify small fixed-income positions proposed for aggregate-value allocation → verify those positions are no more than 1% of CIF assets → verify same coupon, maturity and credit quality using consistent methodology → establish one same-day Rule 17a-7 valuation for each security using independent sources → calculate fund shares so total NAV equals transferred asset value → deliver prospectus, fee differential, rationale, limitations and required security lists to Independent Fiduciary → obtain prior written approval for each purchase → obtain prior approval for electronic confirmation delivery if used → deliver 30-day pricing confirmation → deliver 105-day before-and-after reconciliation → deliver annual updated prospectus while shares are held → provide fund-to-bank/adviser fee report when requested → test combined compensation for reasonableness → confirm dealings are no less favorable than for other shareholders → map remaining PTE 77-4 conditions → separately document Section 404 prudence and loyalty

The right question is not:

"Can we transfer the CIF into our mutual fund without selling the securities?"

It is:

"Can an independent fiduciary prove that the in-kind mechanics preserve the plan's value and that moving into the fiduciary's proprietary product is actually better for the plan rather than merely better for the fiduciary's business?"

Frequently Asked Questions

What does PTE 97-41 cover?

It provides relief for a qualifying Client Plan to acquire shares of an affiliated registered open-end mutual fund in exchange for plan assets transferred in kind from a CIF maintained by the same fiduciary institution that advises the receiving fund.^[1][2]

Does it apply to a normal cash purchase of a mutual fund?

Its specialized transaction is an in-kind CIF conversion. Other affiliated-fund purchases can require different exemption analysis, including PTE 77-4.^[11]

Must the plan leave the CIF completely?

Yes. The prospective exemption requires the transfer and fund purchase to be connected with a complete withdrawal of that plan's assets from the CIF.^[2]

Can the bank's own 401(k) use PTE 97-41?

The definition excludes an employee plan established or maintained by the conversion fiduciary for its workforce.^[2] PTE 77-3 may be relevant to an in-house plan's proprietary fund acquisition.^[4][12]

Can the plan pay a normal mutual-fund sales load?

No sales commissions or other fees may be paid by the Client Plan in connection with the fund-share purchase under Section II(a).^[2]

What assets can move in kind?

Securities for which market quotations are readily available, or cash.^[2]

Must every security be allocated pro rata?

That is the default rule. A narrow fixed-income exception permits aggregate-value allocation under specified conditions.^[2]

How large can the fixed-income exception sleeve be?

No more than 1% of total CIF assets immediately before transfer.^[2]

What conditions apply to those fixed-income securities?

Since May 9, 2022, they must have the same coupon rate, maturity and credit quality.^[2]

Does same credit quality require the same rating?

Not necessarily. DOL replaced the ratings-based reference with a credit-quality standard. Ratings and other independent third-party information can be evidence in a consistent analysis.^[2]

Must the mutual-fund shares equal the transferred value?

The plan must receive fund shares whose total NAV equals the value of transferred assets on the transfer date under the exemption's valuation framework.^[2]

Who values the securities?

Valuation must follow the PTE's Rule 17a-7-based process, using independent sources rather than relying solely on the bank/adviser or receiving fund.^[2][6]

What does the Independent Fiduciary receive before approval?

A current prospectus, fee and fee-differential information, the bank/adviser's rationale, applicable investment limitations, and identification of specified securities subject to special valuation or the fixed-income exception.^[2]

Can approval occur after conversion?

No. The Independent Fiduciary gives prior written approval for each fund-share purchase.^[2]

What is due within 30 days?

Specified pricing information for transferred securities priced under the rule's paragraph (b)(4), including transfer-date price and pricing sources.^[2]

What is due within 105 days?

A reconciliation of the Client Plan's CIF units and value immediately before transfer with mutual-fund shares and NAV immediately after purchase.^[2]

Does disclosure end after the 105-day statement?

No. Updated prospectuses are provided at least annually while converted shares remain held, and a report of fees paid by the fund to the bank/adviser is supplied on request.^[2][5]

Does fee disclosure make any fee acceptable?

No. Combined compensation for plan and fund services must not exceed reasonable compensation.^[2][10]

What does the no-less-favorable rule mean?

Dealings connected with the transfer and purchase must be no less favorable to the Client Plan than the fund's dealings with other shareholders.^[2]

Does PTE 97-41 replace PTE 77-4?

No. Section III coordinates with PTE 77-4 and deems specified conditions satisfied, but it does not state that every PTE 77-4 requirement vanishes.^[2][11]

How is PTE 97-41 different from PTE 91-38?

PTE 91-38 addresses transactions while plan assets remain inside a bank collective fund. PTE 97-41 addresses the specific in-kind exit into an affiliated mutual fund.^[1]

What did the 1998 advisory opinion add?

DOL concluded PTE 77-3 could cover the affiliated employee plan's in-kind acquisition of proprietary fund shares and required valuation methodology consistent with PTE 97-41 treatment of outside client plans in the described conversion. It also emphasized that other CIF-termination or transfer steps may need separate relief.^[4]

Can the bank convert clients mainly to seed a new mutual fund?

A transaction satisfying the PTE can still violate fiduciary loyalty if the bank's product-development interest drives the decision at the expense of participants.^[4][8]

Is PTE 97-41 still active?

Yes. DOL currently lists it and OMB Control No. 1210-0104 through May 31, 2028.^[1]

Does the May 2028 date mean the exemption expires?

No. It is the current information-collection expiration date, not an automatic sunset of the substantive exemption.^[1]

Does exemption compliance prove the mutual fund is prudent?

No. ERISA Section 404 prudence and loyalty duties remain separate.^[8][9]

Sources & References

1. U.S. Department of Labor — Employee Benefits Security Administration: Class Exemptions — Bank CIF Conversions, PTE 1997-41 — https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/class
2. U.S. Department of Labor / Federal Register: Amendments to Class Prohibited Transaction Exemptions To Remove Credit Ratings — Restated PTE 97-41, 87 FR 12985 (March 8, 2022; effective May 9, 2022) — https://www.govinfo.gov/content/pkg/FR-2022-03-08/pdf/2022-04866.pdf
3. U.S. Department of Labor / Federal Register: PTE 97-41 — Final Exemption for Bank Collective Investment Fund Conversions, 62 FR 42830 (August 8, 1997) — https://www.govinfo.gov/content/pkg/FR-1997-08-08/pdf/97-21002.pdf
4. U.S. Department of Labor — Employee Benefits Security Administration: Advisory Opinion 1998-06A — https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/1998-06a
5. U.S. Department of Labor / Federal Register: Collective Investment Funds Conversion Transactions — PTE 97-41 Information Collection, 90 FR 14165 (March 28, 2025) — https://public-inspection.federalregister.gov/2025-05326.pdf
6. Electronic Code of Federal Regulations / Legal Information Institute: 17 CFR §270.17a-7 — Affiliated Transactions — https://www.law.cornell.edu/cfr/text/17/270.17a-7
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 — Reasonable Contract or Arrangement — https://www.law.cornell.edu/cfr/text/29/2550.408b-2
11. U.S. Department of Labor — Employee Benefits Security Administration: PTE 77-4 — Investment in Open-End Investment Companies — https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/class/pte77-4
12. U.S. Department of Labor / Federal Register: PTE 77-3 — In-House Plans of Mutual Fund Complexes, 42 FR 18734 (April 8, 1977) — https://www.govinfo.gov/content/pkg/FR-1977-04-08/pdf/FR-1977-04-08.pdf

Educational Disclaimer

ROIStreet publishes educational content about retirement-plan fiduciary duties, collective investment funds, mutual funds, in-kind conversions and ERISA prohibited-transaction exemptions. This article is not legal, fiduciary, securities, banking, tax, investment, valuation or plan-administration advice. PTE 97-41 is highly fact-specific. Availability depends on the plan, CIF, bank or adviser relationship, receiving fund, complete-withdrawal mechanics, transferred assets, pro rata allocation, fixed-income exception, valuation sources, disclosures, independent-fiduciary status, approval timing, fees, compensation, post-conversion reporting and current law. Satisfying an exemption does not establish that replacing a CIF with an affiliated mutual fund is prudent, loyal, reasonably priced or appropriate for participants.

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