Category Archives: 2020-02

The New Fiduciary Rule (19): Requirement to Correct Failures with PTE Conditions (Part 1)


2020-02, 84-24, fiduciary, prohibited transaction
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The U.S. Department of Labor has 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).

Key Takeaways

  • The DOL’s proposed fiduciary regulation defines fiduciary recommendations to include, among other things, one-time advice where specified conditions are satisfied.
  • That expansive definition will cause many more advisors and insurance agents to be fiduciaries for their recommendations and, where the recommendations result in additional compensation for them or their firms, that compensation will be prohibited. That would be the case where, for example, a rollover recommendation results in fees or commissions from the rollover IRA.
  • Where a prohibited transaction occurs, the protection of an exemption (PTE) will be needed, e.g., PTEs 84-24 or 2020-02.
  • One of the conditions for obtaining the protection of either of those PTEs is an annual retrospective review and report on compliance with the requirements of the exemptions. If a failure is found in the review, it must be corrected or the benefit provided by the exemptions will be lost.

When a person makes a “covered” recommendation to a “retirement investor” and the recommendation, when implemented, results in the person (or his or her firm or an affiliate) receiving additional compensation, a prohibited transaction (under the Code and/or ERISA) will occur.

A “covered” recommendation is one in which the person is a fiduciary (as defined in the proposed fiduciary recommendation) and which falls into one of the three defined categories in the proposed regulation. Those categories include, for example, recommendations about investing in securities or annuities, rollovers, IRA transfers, withdrawals from retirement accounts, and investment strategies, policies and allocations.

Continue reading The New Fiduciary Rule (19): Requirement to Correct Failures with PTE Conditions (Part 1) →

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The New Fiduciary Rule (18): Requirement to File Form 5330 and Pay Excise Taxes


2020-02, 84-24, fiduciary, prohibited transaction
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The U.S. Department of Labor has 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).

Key Takeaways

  • The DOL’s proposed fiduciary regulation defines fiduciary recommendations to include, among other things, one-time advice where specified conditions are satisfied.
  • That expansive definition will cause many more advisors and insurance agents to be fiduciaries for their recommendations and, where the recommendations result in additional compensation for them or their firms, the implementation of the recommendations will result in prohibited transactions. That would be the case where, for example, a rollover recommendation results in fees or commissions from the rollover IRA.
  • Where a prohibited transaction occurs, the protection of an exemption (PTE) will be needed, e.g., PTEs 84-24 or 2020-02.
  • The proposed amendments those PTEs include a requirement that, if a failure to satisfy the conditions of the exemptions is found in the annual review of covered transactions, the failure must be corrected and reported to the DOL and, if those steps are not timely taken, a Form 5330 must be filed with the IRS and excise taxes on prohibited transactions must be paid.

When a person makes a “covered” recommendation to a “retirement investor” and the recommendation, when implemented, results in the person (or his or her firm) receiving additional compensation, a prohibited transaction (under the Code and ERISA) will occur.

A “covered” recommendation is one in which the person is a fiduciary (as defined in the proposed fiduciary recommendation) and which falls into one of the three defined categories. Those categories include, for example, recommendations about investing in securities or annuities, rollovers, IRA transfers, withdrawals from retirement accounts, and investment strategies, policies and allocations.

Continue reading The New Fiduciary Rule (18): Requirement to File Form 5330 and Pay Excise Taxes →

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Most Read Insights – Winter 2023


2020-02, best interest, broker-dealers, DOL, fiduciary, IRA, rollovers

Each calendar quarter, benefits and executive compensation partner Fred Reish posts approximately 12 articles on his blog, fredreish.com. This quarterly digest provides links to the most popular posts during the past three months so that you can catch up on what you missed or re-read them.

The New Fiduciary Rule (1): An Overview

In November, 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 advice to plans, participants (including rollovers) and IRAs.

The New Fiduciary Rule (2): The Impact

The U.S. Department of Labor’s proposed fiduciary package will have different impacts on different types of service providers to retirement plans, participants, IRA owners, investment advisers, broker-dealers, banks and trust companies, and insurance agents. The greatest impact of the changes, if finalized as is, will be on insurance agents, particularly independent producers.

The DOL’s Regulatory Agenda and a New Fiduciary Rule

On September 8, the DOL sent a new fiduciary rule and list of prohibited transactions to the Office of Management & Budget in the White House. The DOL proposed amendments to prohibited transaction exemptions, including PTE 84-24, the exemption used for fiduciary rollover recommendations into individual annuity contracts.

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The New Fiduciary Rule (16): Permissible Compensation under PTE 2020-02


2020-02, broker-dealers, fiduciary, investment adviser, prohibited transaction
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The U.S. Department of Labor has 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.

Key Takeaways

  • ERISA’s fiduciary and prohibited transaction rules require consideration of costs and compensation when fiduciary recommendations are made to “retirement investors,” that is, to private sector retirement plans, participants in those plans, and IRA owners.
  • Where the Internal Revenue Code’s prohibited transaction rules would be violated, the protection of an exemption is needed. In that case, the protections of PTEs 84-24 and 2020-02 will require that costs and compensation be considered.
  • This article focuses on limitations on compensation under PTE 2020-02. However, compensation of advisors and their firms is often an element of the costs of the services and products, and thus can also be part of the consideration of costs.
  • While the general rule in ERISA and the Code is that compensation cannot be more than a reasonable amount, the PTE has additional limitations.

ERISA’s fiduciary responsibility rules require that costs, for both investments and services, be no more than a reasonable amount. In other words, a prudent process will consider the costs of investments and services relative to the value of those investments or services to the retirement investor and relative to reasonably available alternatives. ERISA’s prohibited transaction rules, and the exemptions to the prohibitions, impose a similar limit on compensation when a fiduciary recommendation is conflicted, that is, the compensation cannot be more than a reasonable amount when compared to the value of services being offered. These rules apply to all ERISA-governed retirement plans and participant accounts in those plans (including rollover recommendations).

Continue reading The New Fiduciary Rule (16): Permissible Compensation under PTE 2020-02 →

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ERISA Moments Ep. 14: What do PTEs 2020-02 and 84-24 Require For Rollover Recommendations?


2020-02, ERISA, rollovers

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, What do PTEs 2020-02 and 84-24 Require For Rollover Recommendations?, on the Spotlight on Benefits blog.

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The New Fiduciary Rule (14): The Timeline for the Final Regulation and Exemptions


2020-02, 84-24, fiduciary
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The U.S. Department of Labor has 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.

Key Takeaways

  • The Department of Labor’s proposed fiduciary “package” expands the scope of fiduciary status (to include, e.g., one-time recommendations) and the types of transactions that are covered by fiduciary advice.
  • That is particularly important since, where the fiduciary recommendation involves a conflict of interest (e.g., a new fee or a commission), the firms and their representatives and agents will need to satisfy the conditions of either PTE 84-24 or PTE 2020-02.
  • The comment period for the proposed regulation and exemptions is over. The DOL now starts the process for finalizing the guidance and determining the effective date.

The DOL published its proposed fiduciary regulation and prohibited transaction exemptions in the Federal Register on November 3, 2023. That was the beginning of a process that will end with the final rules and their effective and applicability dates.

The “effective” date is the day on which the guidance becomes final as a regulation or exemption. The “applicability” date is the day on which the new rules must be complied with. The proposals said that the effective date and the applicability date would be the same. However, that may not be the case with the final rules.

This article is my best guess about the timing of the process to complete the DOL’s work.

Continue reading The New Fiduciary Rule (14): The Timeline for the Final Regulation and Exemptions →

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The New Fiduciary Rule (13): Advisors and Agents with Restricted Investment Menus (Part 2)


2020-02, 84-24, fiduciary
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The U.S. Department of Labor has 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.

Key Takeaways

  • The Department of Labor’s proposed fiduciary “package” expands the scope of fiduciary status (to include, e.g., one-time recommendations) and the types of transactions that are covered by fiduciary advice.
  • That is particularly important since, where the fiduciary recommendation involves a conflict of interest (e.g., a new fee or a commission), the firms and their representatives and agents will need to satisfy the conditions of either PTE 84-24 or PTE 2020-02.
  • One question that arises under the best interest standard in the PTEs is whether advisors or insurance agents can make recommendations from limited, or restricted, menus of available products.

This article continues a discussion of the consequences of limited menus on the availability of the exemptions and the relief they provide for compensation resulting from the recommended transactions.

Continue reading The New Fiduciary Rule (13): Advisors and Agents with Restricted Investment Menus (Part 2) →

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The Proposed DOL Fiduciary Rule


2020-02, fiduciary

The Department of Labor’s (DOL’s) recently issued proposed rule would expand the definition of fiduciary advice to cover many services provided by advisers to retirement plans and IRAs.  Under this expanded definition, advisers may need the relief provided by Prohibited Transaction Exemption (PTE) 2020-02 to avoid a prohibited transaction.  The DOL has also proposed amendments to PTE 2020-02.

This article, co-written by Joan Neri, describes the proposed fiduciary advice rule and the proposed amendments to PTE 2020-02 and discusses the impact these proposals, if finalized, will have on advisers.

Continue reading The Proposed DOL Fiduciary Rule →

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The New Fiduciary Rule (12): Advisors and Agents with Restricted Investment Menus (Part 1)


2020-02, 84-24, best interest, DOL, fiduciary, prohibited transaction
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The U.S. Department of Labor has 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.

Key Takeaways

  • The Department of Labor’s proposed fiduciary “package” expands the scope of fiduciary status (to include, e.g., one-time recommendations) and the types of transactions that are covered by fiduciary advice.
  • That is particularly important since, where the fiduciary recommendation involves a conflict of interest (e.g., a new fee or a commission), the firms and their representatives and agents will need to satisfy the conditions of either PTE 84-24 or PTE 2020-02.
  • One question that arises under the best interest standard in the PTEs is whether an adviser or agent can make recommendations from limited, or restricted, menus of available products.

This article focuses on PTE 2020-02 and the relief it provides to broker-dealers, investment advisers, banks and trust companies, and insurance companies that sell through employees and statutory employees.

Continue reading The New Fiduciary Rule (12): Advisors and Agents with Restricted Investment Menus (Part 1) →

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