The New Fiduciary Rule (33): The DOL’s Final PTE 84-24

Key Takeaways

  • The DOL’s fiduciary regulation will be effective on September 23 of this year. As a result, beginning on September 23, one-time recommendations to retirement investors can be fiduciary advice and, where the advice is conflicted, the investment professional and financial institution will need the protection afforded by a PTE.
  • While some of the requirements (called “conditions”) of PTEs 2020-02 and 84-24 also become effective on September 23, others will not be effective until a full year later…September 23, 2025.
  • While PTE 2020-02 can be used for banks, investment advisers, broker-dealers, and insurance companies (“financial institutions”), there is an alternative exemption, PTE 84-24, that can be used by independent insurance agents who recommend annuities and life insurance policies that only require an insurance license (“independent producers”).
  • This article covers the final PTE 84-24 and its effective dates, with a focus on compliance issues for September 23 of this year.

On April 25, 2024, the Department of Labor published its final regulation defining fiduciary status for investment advice and the related exemptions—PTE 2020-02 and 84-24. The exemptions provide relief from prohibited conflicts and compensation resulting from fiduciary recommendations to “retirement investors”–private sector retirement plans, participants (including rollovers), and IRAs (including transfers and exchanges). The fiduciary regulation and exemptions will be effective on September 23, 2024, although compliance with some of the conditions in the exemptions will be further delayed.

For context, all financial institutions—broker-dealers, investment advisory firms, banks and insurance companies–can use PTE 2020-02 for the protection it affords. However, broker-dealers, investment advisers, and banks must use PTE 2020-02 for relief for their conflicted fiduciary recommendations. In addition, relief for insurance products that are treated as securities (e.g., variable and registered annuities) can only be found under 2020-02. Finally, if an insurance product is sold by an employee or statutory employee of an insurance company, PTE 2020-02 must be used for relief.

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The New Fiduciary Rule (32): The DOL’s Final PTE 2020-02

Key Takeaways

  • The DOL’s fiduciary regulation will be effective on September 23 of this year. As a result, beginning on September 23 one-time recommendations to retirement investors can be fiduciary advice and, where the advice is conflicted, the investment professional and financial institution will need the protection afforded by a PTE.
  • While some of the requirements (called “conditions”) of PTEs 2020-02 and 84-24 also become effective on September 23, others will not be effective until a full year later…September 23, 2025.
  • The PTE that must be used for all investment professionals and financial institutions—other than for independent insurance agents—is PTE 2020-02.
  • As a result, financial institutions need to be working on implementing the first part of the PTE’s requirements…so that compliant practices and disclosures are in place by September 23—just months from now.

On April 25, 2024, the Department of Labor published its final regulation defining fiduciary status for investment advice and the related exemptions—PTE 2020-02 and 84-24. The exemptions provide relief from prohibited conflicts and compensation resulting from fiduciary recommendations to “retirement investors”–private sector retirement plans, participants (including rollovers), and IRAs (including transfers and exchanges). The fiduciary regulation and exemptions will be effective on September 23, 2024, although compliance with some of the conditions in the exemptions will be further delayed.

Let’s look at the final of PTE 2020-02 and its effective dates.

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The New Fiduciary Rule (31):The DOL’s Final Fiduciary Definition Compared to the Proposal

Key Takeaways

  • The DOL’s fiduciary regulation and the amended Prohibited Transaction Exemptions (PTEs) 2020-02 and 84-24 will be effective on September 23 of this year.
  • However, some of the requirements (called “conditions”) of PTEs 2020-02 and 84-24 will not be effective until a full year later…September 23, 2025.
  • As a result, broker-dealers, investment advisers, banks, and insurance companies need to begin the work on compliance with the new fiduciary definition and parts of the PTEs…so that compliant practices and disclosures are in place by September 23—just months from now.

On April 25, 2024, the Department of Labor published its final regulation on defining fiduciary status for investment advice, and the related exemptions, in the Federal Register. The exemptions provide relief from prohibited conflicts and compensation resulting from fiduciary recommendations to “retirement investors”–private sector retirement plans, participants (including rollovers), and IRAs (including transfers and exchanges). The fiduciary regulation and exemptions will be effective on September 23, 2024, although compliance with some of the conditions in the exemptions will be further delayed.

Let’s look at the primary definition of non-discretionary fiduciary advice in the proposed regulation and compare it to the definition in the final regulation. This is the first step in complying with the new rules, since compliance with the PTEs will only be need for fiduciary recommendations that involve conflicts of interest.

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ERISA Moments Ep. 24: The Final Fiduciary Regulation and Exemptions Explained

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments.

See the newest episode, The Final Fiduciary Regulation and Exemptions Explained, on the Spotlight on Benefits blog.

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The New Fiduciary Rule (30): The One-Time Recommendation Definition

Key Takeaways

  • The DOL’s fiduciary regulation and the amended Prohibited Transaction Exemptions (PTEs) 2020-02 and 84-24 will be effective on September 23 of this year.
  • However, some of the requirements (called “conditions”) of PTEs 2020-02 and 84-24 will not be effective until September 23, 2025.
  • As a result, broker-dealers, investment advisers, banks and insurance companies need to begin the work on compliance with the new fiduciary definition and parts of the PTEs…so that compliant practices and disclosures are in place by September 23—just months from now.

On April 25, 2024, the Department of Labor published its final regulation on defining fiduciary status for investment advice, and the related exemptions, in the Federal Register. The exemptions provide relief from prohibited conflicts and compensation resulting from fiduciary recommendations to “retirement investors”–private sector retirement plans, participants (including rollovers), and IRAs (including transfers and exchanges). The fiduciary regulation and exemptions will be effective on September 23, 2024, although compliance with some of the conditions in the exemptions will be further delayed.

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The New Fiduciary Rule (29): The Final Rules Have Arrived

Key Takeaways

  • The final versions of the DOL’s fiduciary regulation and the amended PTEs have been published in the Federal Register.
  • The regulation and exemptions will be effective and applicable on September 23 of this year.
  • However, some of the requirements (called “conditions”) of Prohibited Transaction Exemptions (PTEs) 2020-02 and 84-24 will not be effective until September 23, 2025.
  • As a result, broker-dealers, investment advisers, banks and insurance companies need to begin the work on compliance…so that compliant practices and disclosures are in place by September 23—just months from now.

On April 25, 2024, the Department of Labor published its final regulation on fiduciary advice, and the related exemptions, in the Federal Register. The regulation defines fiduciary investment advice and the exemptions provide relief from prohibited conflicts and compensation resulting from fiduciary recommendations to private sector retirement plans, participants (including rollovers), and IRAs (including transfers and exchanges). The fiduciary regulation and exemptions will be effective 150 days after publication, which is September 23, 2024, although compliance with some of the conditions in the exemptions will be further delayed.

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ERISA Moments Ep. 23: ERISA Litigation Odds and Ends: ESG, Crypto and Forfeitures

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments.

See the newest episode, ERISA Litigation Odds and Ends: ESG, Crypto and Forfeitures, on the Spotlight on Benefits blog.

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The New Fiduciary Rule (28): Coming Attractions—The Final Fiduciary Rules Are on the Horizon

In November 2023, the U.S. Department of Labor released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs (including transfers). On March 8, 2024, the DOL sent the final rule to the Office of Management and Budget in the White House. On April 10 the OMB completed its review of the final rules. The next step is for the rules to be published in the Federal Register.

Key Takeaways

  • The final versions of the DOL’s fiduciary regulation and the amended PTEs have been reviewed by the Office of Management and Budget (OMB) in the White House—the final step in the approval process.
  • Now that the OMB has completed its part, the DOL will start the process for publishing the final rules in the Federal Register. The publication will likely be in the next two to three weeks.
  • Sixty days after publication, the final rules will be effective.
  • However, it is not clear if they will be applicable at the same time. There may be a delayed applicability date.

In November of 2023, the DOL proposed amendments to the regulation that defines when a person becomes a fiduciary by virtue of making “investment” recommendations to “retirement investors.”

I put the apostrophes around “investment” because the term, as used in the regulation, includes a range of services and types of properties. And I did the same with “retirement investors” because it is a defined term—private sector retirement plans, participants in those plans, and IRA owners.

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The New Fiduciary Rule (27): Changes to PTE 2020-02 (2): Affecting Financial Institutions

In November 2023, the U.S. Department of Labor released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs (including transfers). On March 8, 2024, the DOL sent the final rule to the Office of Management and Budget in the White House.

Key Takeaways

  • The DOL’s proposed fiduciary regulation includes a new and expanded definition of when a person will become a fiduciary under ERISA and the Internal Revenue Code due to recommendations to retirement investors.
  • As a result, many more advisors and agents will be fiduciaries.
  • If a fiduciary recommendation to a retirement investor is conflicted, any resulting financial benefit will be prohibited under ERISA and the Code. In that case, to avoid the consequences of a prohibited transaction, it would be necessary to comply with the conditions of a prohibited transaction exemption (PTE)—most likely PTE 2020-02.
  • My last article discussed the proposed changes to PTE 2020-02 that will affect individual advisors and agents. This article discusses the changes that affect the financial institutions.

The first, and current, version of Prohibited Transaction Exemption (PTE) 2020-02 was effective in December 2020. In November of 2023, the DOL proposed amendments to PTE 2020-02 in connection with its proposed regulation expanding the definition of fiduciary advice to retirement investors—private sector retirement plans, participants in those plans, and IRA owners.

The proposed regulation will cause many more people and firms to be fiduciaries when they make “investment” recommendations to retirement investors. (I put the apostrophes around investment because the term, as used in the regulation, includes a range of services and types of products.)

When an investment recommendation is conflicted (that is, if the recommendation is accepted and implemented, it will financially benefit the advisor or the firm), the financial benefit is prohibited—literally prohibited. However, if there is an available exemption, and if the conditions of the exemption are satisfied, the transaction can proceed and the financial benefit can be retained.

PTE 2020-02, in both its current form and in the proposed amended version, provides relief to broker-dealers, investment advisers, insurance companies, and banks, and to the individuals who act on their behalf. While those individuals could be advisors or agents of any of those types of firms, this article uses “advisors” for ease of reading.

The proposed 2020-02 has changes from the current version. Some primarily affect the individual advisors (called “investment professionals” by the DOL) while others primarily affect the firms (called “financial institutions”). Both the investment professionals and the financial institutions are fiduciaries for purposes of satisfying the requirements of the exemption.

This article discusses the most significant changes that primarily affect financial institutions. My last post, Fiduciary Rule 26, covered the changes that will affect investment professionals.

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ERISA Moments Ep. 22: An Update on the DOL Fiduciary Proposals: A Race to the Finish

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments.

See the newest episode, An Update on the DOL Fiduciary Proposals: A Race to the Finish, on the Spotlight on Benefits blog.

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