This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This article looks at the Department of Labor’s recent extension of its non-enforcement policy regarding the conditions of Prohibited Transaction Exemption 2020-02….if the Impartial Conduct Standards are satisfied.
Key Takeaways
- PTE 2020-02—sometimes referred to as fiduciary rule 3.0—was effective on February 16, 2021.
- However, in the preamble to the PTE, the DOL extended its “non-enforcement policy” (Field Assistance Bulletin 2018-02) to December 20, 2021. That is, the DOL and IRS will not enforce the conditions of the exemption if financial institutions and investment professionals work “diligently and in good faith to comply with the Impartial Conduct Standards”.
- In Field Assistance Bulletin (FAB) 2021-02, the DOL has extended the non-enforcement policy to January 31, 2022, and has extended, until June 30, 2022, its non-enforcement approach to the requirement to provide retirement investors with a written description of the “specific reasons” why a rollover recommendation is in the retirement investor’s best interest.
- This article discusses the impact of the extension on (1) the conditions of PTE 2020-02, (2) the application of the expanded definition of fiduciary advice, including rollover recommendations, (3) the application to PTE 84-24 for insurance and annuity sales, and (4) the significance of the Impartial Conduct Standards in this context.
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 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 will be fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.
