Tag Archives: correction

PTE 2020-02: The Remaining Steps: Retrospective Review and Correction of Compliance Failures (Part 1)

Key Takeaways

    • The next step in compliance with the DOL’s PTE 2020-02 is to conduct the annual retrospective review for 2022 and to reduce the review to a written report to be signed by a “senior executive officer.”
    • The review and report must be completed within 6 months after the end of the year.
    • In the process of conducting the review, it is likely that compliance failures will be discovered. To avoid prohibited transaction consequences, the failures must be corrected within 90 days of discovery and reported to the DOL within 30 days of correction.
    • The failures and corrections must also be included in the report.
    • There are a number of types of potential failures, some of which may be easy to correct and others of which will be more difficult.
    • Unfortunately, the DOL did not provide any guidance on how to correct failures. As a result, careful thought—with competent legal advice—should be given to the correction methodology.

Now that 2022 is behind us, the final steps in compliance with PTE 2020-02 must be satisfied. Those steps are (i) conducting the annual retrospective review and the resulting report (within six months) and (ii) correcting any compliance failures that are discovered in the course of the review.

The Review and Report are conditions to obtaining the relief afforded by the exemption. In other words, if they are not properly completed the protection is lost and all conflicted recommendations under the PTE are considered to be prohibited transactions. The consequence of having hundreds or even thousands of prohibited transactions is unimaginable. Here’s what the PTE says about the Retrospective Review and Report:

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Best Interest Standard of Care for Advisors #83: Compliance with PTE 2020-02: Enforcement of the Exemption

The Department of Labor’s “Fiduciary Rule,” PTE 2020-02:  The FAQs

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This, and the next several, articles look at the Frequently Asked Questions (FAQs) issued by the DOL to explain the fiduciary definition and the exemption for conflicts of interest.

Key Takeaways

The DOL has issued FAQs that generally explain PTE 2020-02 and the expanded definition of fiduciary advice.

  • In FAQ 21, the DOL discussed how it would enforce compliance with the exemption.
  • As a starting point, the DOL has the authority to interpret and enforce the requirements of the PTE as they apply to retirement plans, including recommendations to participants to take their benefits out of a retirement plan and roll to an IRA.
  • In addition, under ERISA there are private rights of actions for breaches of fiduciary duties to plans and participants, including recommendations to rollover.
  • In addition, while the DOL does not have investigative or enforcement authority for violations of the conditions of the exemption for non-ERISA vehicles, such as IRAs, if it finds those violations it will refer them to the IRS.

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 (“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.

Continue reading Best Interest Standard of Care for Advisors #83: Compliance with PTE 2020-02: Enforcement of the Exemption

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