Key Takeaways
The DOL has issued FAQs that generally explain PTE 2020-02 and the expanded definition of fiduciary advice, particularly for rollover recommendations.
The DOL’s expanded definition of fiduciary advice was described in the preamble to PTE 2020-02.
The PTE then provides relief for conflicted non-discretionary recommendations (for example, rollover recommendations), if its conditions are satisfied.
A number of my earlier articles have discussed the requirements that PTE 2020-02 imposes on rollover recommendations.
This article discusses the need for information about the plan and the participant’s interests in the plan in order to develop a compliant rollover recommendation.
Background
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 (including rollover recommendations), and IRA owners (all of whom are referred to as “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 are fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.
In the preamble to the PTE, the DOL described its expanded definition of fiduciary advice. The fiduciary regulations in ERISA and the Internal Revenue Code have two definitions of fiduciary advice. The first is the obvious—where the investment professional and financial institution have discretion over the investments in retirement accounts. In effect, that is a one-part test—“discretion.” In addition, there is a 5-part test for non-discretionary fiduciary advice. The DOL did not amend the regulation to modify any of the “parts,” but instead reinterpreted some of the parts, and particularly the “regular basis” part, to significantly increase the number of investment professionals and financial institutions who are fiduciaries.
This article focuses on the information that is needed to make a compliant rollover recommendation and particularly about information concerning the participant’s interest in the plan.
