Best Interest Standard of Care for Advisors #71: Compliance with PTE 2020-02: Further Extension of Non-Enforcement Policy

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This article looks at the Department of Labor’s recent extension of its non-enforcement policy regarding the conditions of Prohibited Transaction Exemption 2020-02….if the Impartial Conduct Standards are satisfied.

Key Takeaways

  • PTE 2020-02—sometimes referred to as fiduciary rule 3.0—was effective on February 16, 2021.
  • However, in the preamble to the PTE, the DOL extended its “non-enforcement policy” (Field Assistance Bulletin 2018-02) to December 20, 2021. That is, the DOL and IRS will not enforce the conditions of the exemption if financial institutions and investment professionals work “diligently and in good faith to comply with the Impartial Conduct Standards”.
  • In Field Assistance Bulletin (FAB) 2021-02, the DOL has extended the non-enforcement policy to January 31, 2022, and has extended, until June 30, 2022, its non-enforcement approach to the requirement to provide retirement investors with a written description of the “specific reasons” why a rollover recommendation is in the retirement investor’s best interest.
  • This article discusses the impact of the extension on (1) the conditions of PTE 2020-02, (2) the application of the expanded definition of fiduciary advice, including rollover recommendations, (3) the application to PTE 84-24 for insurance and annuity sales, and (4) the significance of the Impartial Conduct Standards in this context.


The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees), allows investment advisers, broker-dealers, banks, and insurance companies (“financial institu­tions”), and their representatives (“investment professionals”), to receive conflicted compensation resulting from non-discretionary fiduciary investment advice to ERISA retirement plans, participants and IRA owners (“retirement investors”). In addition, in the preamble to the PTE the DOL announced an expanded definition of fiduciary advice, meaning that many more financial institutions and investment professionals will be fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.

In the preamble to PTE 2020-02, the DOL explained that, while the PTE was effective on February 16, 2021, it would not enforce the detailed and demanding requirements of the exemption until December 21, 2021, if financial institutions and their investment professionals were working diligently and in good faith to comply with the Impartial Conduct Standards. On October 25, the DOL issued Field Assistance Bulletin (FAB) 2021-02, which further extended the non-enforcement policy. Here is how that FAB explained the history and the extension:

In FAB 2018-02, the Department stated it would not pursue prohibited transaction claims against investment advice fiduciaries who worked diligently and in good faith to comply with “Impartial Conduct Standards” for transactions that would have been exempt under the new exemptions or treat such fiduciaries as violating the applicable prohibited transaction rules. In finalizing PTE 2020-02, the Department announced that the temporary enforcement policy stated in FAB 2018-02 would remain in place until December 20, 2021.


[T]he Department has concluded that it is appropriate to provide additional transition relief through this enforcement policy. First, for the period from December 21, 2021, through January 31, 2022, the Department will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the Impartial Conduct Standards for transactions that are exempted in PTE 2020-02 or treat such fiduciaries as violating the applicable prohibited transaction rules.


Second, the Department has determined that it will not enforce the specific documentation and disclosure requirements for rollovers in PTE 2020-02 through June 30, 2022. All other requirements of the exemption, however, will be subject to full enforcement as of February 1, 2022. The Department is convinced that this temporary and limited enforcement relief is appropriate and in the interest of plans, plan fiduciaries, plan participants and beneficiaries, IRAs, and IRA owners.

In summary, the non-enforcement policy is generally extended from December 20, 2021 to January 31, 2022, a period of approximately six weeks. The additional time helps, but it isn’t enough time to warrant a delay in working on compliance with the PTE’s conditions. However, the DOL will not enforce the requirement to document the reasons why a rollover recommendation is in the best interest of a retirement investor, and to provide that documentation to the retirement investor, until July 1, 2022. That affords financial institutions a meaningful extension to work with third party benchmarking services for the data needed to evaluate rollover considerations and to train their investment professionals on the use of that data and the best interest process for evaluating rollover recommendations.

But, the extension is only partial…because it doesn’t extend other issues related to the DOL’s expanded definition of fiduciary advice and the application of the best interest standard in the interim. That raises the obvious question…what isn’t extended?

  • The Impartial Conduct Standards. In order to obtain the protection of the DOL’s non-enforcement policy, financial institutions and their investment professionals must be working diligently and in good faith to comply with those Standards. FAB 2021-02 described the Standards as follows:

The Impartial Conduct Standards specifically require financial institutions and investment professionals to:

  • Give advice that is in the “best interest” of the retirement investor. This best interest standard has two chief components: prudence and loyalty;
  • Under the prudence standard, the advice must meet a professional standard of care as specified in the text of the exemption;
  • Under the loyalty standard, advice providers may not place their own interests ahead of the interests of the retirement investor, or subordinate the retirement investor’s interests to their own;
  • Charge no more than reasonable compensation and comply with federal securities laws regarding “best execution;” and
  • Make no misleading statements about investment transactions and other relevant matters.

These requirements must be satisfied in order to qualify for the protection provided by the extension of the non-enforcement policy. For example, the first requirement is a combination of ERISA’s duties of prudence and loyalty. In other words, this has the effect of imposing fiduciary status on any advice to retirement investors that results in, e.g., conflicted compensation, e.g., commissions or fees from rollover IRAs. If you look at the DOL’s position on recommending plan-to-IRA rollovers, it is clear that the DOL expects financial institutions and investment professionals to engage in  a best interest process to consider (1) information about the investments, services and costs in the retirement plan and the participant’s interest in the plan; and (2) information about the investments, services and costs in the IRA; in light of (3) the participant’s needs, investment objectives, financial circumstances, and risk tolerance. While the non-enforcement policy extension does not delay the need engage in that best interest process, it does provide additional time to develop and deliver written documentation of the specific reasons why the recommendation is in the best interest of the retirement investor.

  • The expanded fiduciary interpretation. When the DOL announced its expanded fiduciary interpretation for recommendations to retirement plans, participants and IRA investors (“retirement accounts” and “retirement investors”) in the preamble to PTE 2020-02, it said that it would not enforce the expanded definition (at least, as it applied to rollover recommendations) for periods before the effective date of the PTE, February 16, 2021. However, the DOL could begin applying the interpretation on that date. Here’s how the preamble described that decision:

[T]he Department will not pursue claims for breach of fiduciary duty or prohibited transactions against any party, or treat any party as violating the applicable prohibited transaction rules, for the period between 2005, when the Deseret Letter was issued, and February 16, 2021, based on a rollover recommendation that would have been considered non-fiduciary conduct under the reasoning in the Deseret Letter….For this reason, and because the Department does not wish to disturb the reliance interests of those who looked to the Deseret Letter for guidance, the Department also does not expect or intend a private right of action to be viable for a transaction conducted in reliance on the Deseret Letter prior to that date.

However, the non-enforcement policy did not cover the issue of fiduciary status. In other words, both the DOL and private litigants still have the right to enforce the fiduciary status of a financial institution and its investment professionals where fiduciary breaches occur. However, the DOL can only enforce the fiduciary standard for transactions covered by ERISA. While that would not include advice to stand-alone IRAs, it does include recommendations to ERISA-governed retirement plans and their participants, which includes plan-to-IRA rollover recommendations.

  • Prohibited Transaction Exemption 84-24. While PTE 2020-02 will cover most recommended (that is, nondiscretionary) financial transactions to retirement investors, some insurance companies and broker-dealers are relying instead on PTE 84-24 for rollover recommendations into insurance products, g., individual retirement annuities. However, the FAB 2021-02 extension does not apply to 84-24. As a result, insurance companies, insurance agents and brokers, and broker-dealers should analyze the FAB’s extension and decide on their approaches for compliance. Under PTE 2020-02, insurance companies will be, in effect, “co-fiduciaries” with the agents; however, where 84-24 is used by agents, insurance companies will not, in the typical case, be treated as co-fiduciaries. However, they may want to consider adapting their suitability processes to the new fiduciary environment.

Concluding Thoughts

Without detailed knowledge of these rules, it could be easy to think that the DOL’s FAB 2021-02 has extended all of the requirements to February 1, 2022, with the “specific reasons” requirement being extended to July 1, 2022. But, that is not the case.

First, the extension of the non-enforcement policy requires compliance with the Impartial Conduct Standards, which includes a best interest standard (that is, fiduciary + loyalty). Second, the fiduciary interpretation was not extended. It applied on February 16 and the enforcement of that standard was not delayed. (In addition, the non-enforcement policy could not, and does not, limit private rights of action. Plans and participants can file claims based on their rights under ERISA, and the DOL cannot limit those rights.) Third, in some cases, PTE 84-24 will be used to avoid prohibited transactions for sales of insurance products to plans, participants and IRAs, and particularly for rollover recommendations into individual retirement annuities. The DOL has not provided a non-enforcement policy for prohibited transactions covered by 84-24. The interplay between the PTEs-2020-02 and 84-24-can be complex. It should be evaluated with the help of an ERISA attorney with experience in this area.

The extension is a good news/bad news scenario. The good news that there is more time to comply with the conditions of PTE 2020-02. But, there is bad news if the extension is incorrectly interpreted as a blanket covering all of the legal requirements for recommendations to retirement investors.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Faegre Drinker.