The Department of Labor’s Proposed Prohibited Transaction Exemption and its Impact on Recommendations to Plans, Participants and IRAs (Part 1)
On July 7, 2020 the DOL issued a proposed prohibited transaction exemption (PTE) that would allow conflicted recommendations resulting from nondiscretionary fiduciary investment advice. The proposal is titled “Improving Investment Advice for Workers & Retirees.” As background, an exemption is an exception to the prohibited transaction rules, but the exception is only available if its conditions are satisfied…and there are conditions.
Best Interest Standard and Recommendations of Rollovers and Withdrawals
On June 15, SEC Chairman Clayton issued a statement partially entitled: “Need for Increased Care when Recommending 401(k)/IRA Rollovers and Withdrawals . . .”. As that title suggests, the Chairman’s statement covers areas where the SEC will focus on recommendations when Reg BI applies on June 30. One of those areas of “increased care” is the recommendation of rollovers (and other withdrawals) from retirement plans.
The best interest standard for investment advisers became applicable last year. As a result, the Chairman’s statement already applies to rollover recommendations by investment advisers.
One part of the statement is entitled: “Areas Where Increased Care May be Necessary When Making Recommendations to Main Street Investors“. In that part, the statement says:
Regulation Best Interest: Rollover Recommendations for Pension Plan Benefits (Rollovers Part 8)
The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”
This is the 8th of my series of articles about rollover recommendations and rollover education under the SEC’s Regulation Best Interest and its Interpretation for Investment Advisers. (For the first seven, see Best Interest for Advisors #’s 15, 16, 17, 18, 19, 20, and 21.)
The first seven of these rollover articles have, by and large, related to rollover recommendations and education for participants in 401(k) plans. But, of course, there are other types of plans…for example, ESOPs, cash balance plans, profit sharing plans, and defined benefit pension plans. This article looks at rollover recommendations to participants in defined benefit plans and concludes that rollover “education” may be the more practical approach.