Tag Archives: plan

The New Fiduciary Rule (6): The Fiduciary Definition of Fiduciary


DOL, fiduciary, investment adviser, IRA
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The US Department of Labor has released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment advice to plans, participants (including rollovers), and IRAs (including transfers of IRAs).

Key Takeaways

  • The Department of Labor’s proposed regulation defining fiduciary investment and insurance/annuity advice to private sector retirement plans, participants in those plans, and IRA owners (collectively, “retirement investors”) includes three distinct definitions.
  • Those definitions are: discretionary investment management, non-discretionary investment advice, and acknowledgement of fiduciary status. In each of those cases, the person and the firm will be fiduciaries under ERISA and the Internal Revenue Code for purposes of their investment recommendations and services to retirement investors.
  • A new definition in the proposal, and one that is not likely to be controversial, is the third one….a person will be a fiduciary for investment recommendations if that person says that the person and/or the firm are acting as fiduciaries for the recommendation.

This post discusses the “fiduciary acknowledgement” definition of fiduciary investment advice in the DOL’s proposed fiduciary regulation. More specifically, the proposed regulation says that a person will be an ERISA and Code fiduciary if “The person making the recommendation represents or acknowledges that they are acting as a fiduciary when making investment recommendations.” (There will be future articles discussing “investment recommendations”, but for the moment, consider it to be a recommendation for a retirement investor to invest in securities, insurance or other property.)

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The New Fiduciary Rule (3): Fixed Indexed Annuities


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The US Department of Labor has released its package of proposed changes to the regulation defining nondiscretionary fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs.

Key Takeaways

    • Statements from the White House indicate that the DOL and the White House are concerned that fixed indexed annuities may be inappropriately sold to participants and IRA owners (“retirement investors”) in connection with recommendations to roll over benefits from plans and to transfer money from IRAs. Some of the political rhetoric accompanying the release of the proposals was unusually harsh.
    • The reaction from the insurance industry and state insurance commissioners has been immediate and strong.
    • If the proposals become final as written, the greatest impact of the changes will likely be on insurance agents, particularly independent producers.
    • The greatest impact on products will likely be on fixed indexed annuities.
    • This and several following articles will cover the impact on independent insurance agents, insurance companies, and annuities.

This article discusses the DOL’s thoughts on prudent processes for evaluating fixed indexed annuities, which dates back to the Obama-era Best Interest Contract Exemption (which was vacated in 2018 by the 5th Circuit of Appeals).

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The New Fiduciary Rule (2): The Impact


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The US Department of Labor has released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment advice to plans, participants (including rollovers), and IRAs.

Key Takeaways

  • The Department of Labor’s proposed fiduciary “package” will have different impacts on different types of service providers to retirement plans, participants, and IRA owners (collectively, “retirement investors”) . . . .investment advisers, broker-dealers, banks and trust companies, and insurance agents (and companies) (“financial professionals”).
  • The greatest impact of the changes, if finalized as is, will be on insurance agents, particularly independent producers. Insurance companies issuing the life insurance policies and annuity contracts will also see increased compliance burdens.
  • For all of the types of financial professionals, the most impactful change will likely be that one-time investment recommendations to private sector retirement plans and their participants, and to IRA owners, will be fiduciary advice. That includes rollover recommendations.

This post discusses the likely impact of the new proposals. Future posts will go into more detail about the proposals and compliance issues:

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The New Fiduciary Rule (1): An Overview


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The US Department of Labor has released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment advice to plans, participants (including rollovers), and IRAs.

Key Takeaways

  • One time investment recommendations to qualified and ERISA retirement plans and their participants, and to IRA owners, can be fiduciary advice. Plans, participants and IRA owners are referred to as “retirement investors”.
  • A rollover recommendation is one-time advice that will result in fiduciary status.
  • Fiduciary recommendations that result in compensation to a securities adviser (that is, to an investment adviser or broker-dealer) or to an insurance agent will be prohibited conflicts of interest, necessitating satisfaction of the conditions in a prohibited transaction exemption.

This blog post is an overview of the new proposals. Follow up posts will go into detail on each of the proposals.

The proposed fiduciary regulation—called the “Retirement Security Rule”–defines fiduciary advice as follows:

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The DOL’s Fiduciary Interpretation and the Florida Court Decision


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In 2020, the Department of Labor (DOL) issued its Prohibited Transaction Exemption (PTE) 2020-02 to provide an exemption to most prohibited transactions resulting from nondiscretionary fiduciary advice to retirement plans governed by either ERISA or the Internal Revenue Code, or both, as well as nondiscretionary fiduciary advice to IRAs.

The DOL’s Fiduciary Interpretation and Prohibited Transaction Exemption

In the preamble to the PTE, the DOL expanded its view of the nature of the advice that would result in fiduciary status. One of those expanded interpretations was that, in a rollover context, IRAs and plans should be viewed as having a continuous connection because they are retirement assets on a continuum. More specifically, the DOL said that, if an advisor has been providing investment advice on a regular basis to an IRA and then recommends that the IRA owner make a rollover to the IRA, the plan-to-IRA rollover recommendation would be connected to the advice to the IRA that had been provided on a regular basis and, as a result, the advisor would be a fiduciary for the rollover recommendation. Similarly, if an advisor made a plan-to-IRA rollover recommendation and then provided investment advice to the rollover IRA on a regular basis, the advisor would be a fiduciary for the rollover recommendation because the rollover recommendation and the advice to the rollover IRA would be on a continuum. (For the purposes of this article, “advisor” includes broker-dealers and investment advisers, and their representatives, and insurance agents.)

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The SECURE Act 2.0: The Most Impactful Provisions #7—Tax Credits for Administrative and Contribution Costs for New Plans for Small Employers (Part 2)


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Key Takeaways

  • The SECURE Act 2.0 provides significant tax credits for startup plan costs—for both administration and contribution costs.
  • The credits are fully available for employers with 50 or fewer employees and partially available up to 100 employees.
  • This provision is effective now, that is, it is effective for tax years beginning after December 31, 2022 (in 2023 for calendar year taxpayers).

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article and the next one discusses the “optional” provisions that provide significant tax credits for startup plans for small employers. The Senate Finance Committee’s summary of the provision explains:

Section 102, Modification of credit for small employer pension plan startup costs. The 3-year small business startup credit is currently 50 percent of administrative costs, up to an annual cap of $5,000. Section 102 [of the Act] makes changes to the credit by increasing the startup credit from 50 percent to 100 percent for employers with up to 50 employees. Except in the case of defined benefit plans, an additional credit is provided. The amount of the additional credit generally will be a percentage of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000. This full additional credit is limited to employers with 50 or fewer employees and phased out for employers with between 51 and 100 employees. The applicable percentage is 100 percent in the first and second years, 75 percent in the third year, 50 percent in the fourth year, 25 percent in the fifth year – and no credit for tax years thereafter. Section 102 is effective for taxable years beginning after December 31, 2022.

My last post (SECURE Act 2.0 #6 (Part 1)) covered the expanded tax credit for start-up  costs; this one covers the tax credit for employer contributions.

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The SECURE Act 2.0: The Most Impactful Provisions #6 – Tax Credits for Administrative and Contribution Costs for New Plans for Small Employers (Part 1)


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Key Takeaways

  • The SECURE Act 2.0 provides significant tax credits for startup plan costs—for both administration and contribution costs.
  • The credits are fully available for employers with 50 or fewer employees and partially available up to 100 employees.
  • This provision is effective now, that is, it is effective for tax years beginning after December 31, 2022 (in 2023 for calendar year taxpayers).

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that so many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article and the next one discusses the “optional” provisions that provide significant tax credits for startup plans for small employers. The Senate Finance Committee’s summary of the provision explains:

Continue reading The SECURE Act 2.0: The Most Impactful Provisions #6 – Tax Credits for Administrative and Contribution Costs for New Plans for Small Employers (Part 1) →

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Best Interest Standard of Care for Advisors #94: Maintenance of Documentation for Compliance with PTE 2020-02


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, rollovers
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Key Takeaways

The DOL’s expanded definition of fiduciary advice is described in the preamble to PTE 2020-02.

When conflicted fiduciary advice is given to retirement investors (that is, retirement plans, participants (including rollovers), and IRA owners), it results in prohibited transactions under the Internal Revenue Code and ERISA. But the PTE then provides relief for conflicted non-discretionary recommendations. However, the relief is only available if all of the PTE’s conditions are satisfied.

While much attention has been given to the “conditions” for obtaining the relief provided by PTE 2020-02, there hasn’t been much discussion of the PTE’s requirements to retain documentation of compliance with those conditions. This articles discusses those requirements.

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.

For example, a rollover recommendation will ordinarily be nondiscretionary fiduciary advice and result in a financial conflict of interest (i.e., the compensation earned from the rollover IRA) that is a prohibited transaction under both ERISA and the Internal Revenue Code. But, since the recommendation is nondiscretionary, PTE 2020-02 provides relief, but only if all of its conditions are met.

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Best Interest Standard of Care for Advisors #93: Correction of Failures to Satisfy PTE 2020-02


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, rollovers
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Key Takeaways

The DOL’s expanded definition of fiduciary advice is described in the preamble to PTE 2020-02.

When conflicted fiduciary advice is given to retirement investors (that is, retirement plans, participants (including rollovers), and IRA owners), it results in prohibited transactions under the Internal Revenue Code and ERISA. But the PTE then provides relief for conflicted non-discretionary recommendations. However, the relief is only available if all of its conditions are satisfied.

Unfortunately, we are already seeing that some broker-dealers and investment advisers have not fully complied with the exemption’s conditions, at least in connection with some of their recommendations.

That raises the question of “What are the consequences of those failures?” This article discusses the failures, corrections, reporting to the DOL, and inclusion of the failures in the annual retrospective review and report.

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.

For example, a rollover recommendation will ordinarily be nondiscretionary fiduciary advice and 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 provides relief, but only if all of its conditions are met.

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Best Interest Standard of Care for Advisors #92: Consideration of Costs in the Evaluation of Rollovers


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, rollovers, SEC
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Key Takeaways

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.

In both its Regulation Best Interest (Reg BI) for broker-dealers and Interpretation Regarding Standard of Conduct for Investment Advisers (Investment Adviser Interpretation), the SEC said that rollover recommendations were subject to its best interest standard of care, which is similar to the DOL’s fiduciary and loyalty standards.

Both the DOL and the SEC also say that cost is a material consideration in evaluating rollovers. This article discusses that guidance.

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.

Under these standards, a rollover recommendation will ordinarily be nondiscretionary fiduciary advice and 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 can provide relief, but only if all of its conditions are met.

Continue reading Best Interest Standard of Care for Advisors #92: Consideration of Costs in the Evaluation of Rollovers →

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