The DOL’s expanded definition of fiduciary advice is 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.
While most rollover discussions are about recommendations to participants in 401(k) and 403(b) plans, the fiduciary definition is broader than that. For example, it also covers rollover recommendations to participants in defined benefit pension plans.
This article discusses how the fiduciary definition and PTE 2020-02 apply to defined benefit plans.
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.
A rollover recommendation will ordinarily be nondiscretionary fiduciary advice and will result in a financial conflict of interest that is a prohibited transaction under both ERISA and the Internal Revenue Code. But, since the recommendation is nondiscretionary, PTE 2020-02 will provide relief, but only if all of its conditions are met.