Tag Archives: Reinterpretation

The DOL’s Regulatory Agenda and a New Fiduciary Rule


2020-02, best interest, DOL, fiduciary, IRA, rollovers
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UPDATE: On August 8, I posted this blog article in contemplation of the DOL sending a new fiduciary proposal package to the Office of Management & Budget (OMB) in the White House. One month later, to the day, the receipt of the DOL’s proposed fiduciary rule and prohibited transactions was posted on the OMB’s website. In reviewing my blog article, I think it was spot on in predicting key elements of the fiduciary rule and the exemptions. However, that is still based on my crystal ball, since the changes new proposals won’t be known until they are vetted by the OMB and published in the Federal Register—probably 45 to 60 days from now. As this article suggests, the fiduciary proposal will likely say that rollover recommendations are fiduciary advice and that rollover recommendations to annuities will be subject to more stringent standards.

Key Takeaways

  • The anticipated DOL proposed fiduciary regulation could be sent to the Office of Management & Budget (OMB) in a matter of weeks.
  • The proposal will likely say that a rollover recommendation to a participant in an ERISA governed retirement plan is a fiduciary act.
  • The DOL will also likely propose amendments to prohibited transaction exemptions (PTEs), including to PTE 84-24, the exemption used for fiduciary rollover recommendations into individual annuity contracts.

The DOL has not appealed the decision in the Florida Federal District Court that vacated its fiduciary “re-interpretation.” That re-interpretation, in effect, said that ongoing investment advice to a rollover IRA could be connected to the rollover recommendation to a participant such that the “regular basis” prong of the 5-part fiduciary test would be satisfied. For context, the DOL had previously said that, if a person was not already a fiduciary to a plan, a recommendation to a participant to rollover his or her benefits was a standalone recommendation and therefore did not satisfy the regular basis prong of the 5-part test.

The re-interpretation tried to connect the recommendation to the plan (that is, for the participant to rollover to an IRA) to subsequent investment advice to the rollover IRA and, in that way, to conclude that the rollover recommendation was part of a regular basis advice arrangement. However, the Court held that the “regular basis” test is applied separately to the plan and the IRA and advice to the two could not be connected.

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Rollovers, Regulation, Litigation: Where Are We and What’s Next?


2020-02, fiduciary, prohibited transaction, rollovers
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Key Takeaways

  • The recent decisions on the DOL’s interpretation of fiduciary status are significant but limited in scope. Fiduciary status for plan-to-IRA rollover recommendations, standing alone, has been vacated. But other important transactions, such as IRA transfers, have not.
  • Also, where an advisor is a fiduciary to a plan or participant, and then recommends a rollover, the DOL will likely take the position that the rollover recommendation is a fiduciary act, necessitating the use of PTE 2020-02.
  • In addition, the SEC’s guidance on rollover recommendations by investment advisers and broker-dealers is closely aligned with the DOL’s, particularly on the best interest process, and the relevant plan information, needed to engage in a best interest process.

Let’s take a break from my SECURE 2.0 series of articles to discuss what is going on with the DOL’s fiduciary rule.

The Past

As background, in the preamble to Prohibited Transaction Exemption (PTE) 2020-02, the DOL re-interpreted the 5-part test in its regulation defining fiduciary status for nondiscretionary investment advice. The most significant part of the reinterpretation was the DOL position that recommendations to participants to take distributions from their retirement plans and to rollover to IRAs could be connected to subsequent investment advice to the rollover IRAs to satisfy the “regular basis” prong of the 5-part test.

Under that theory most rollover recommendations would be fiduciary recommendations, which in turn would require satisfaction of the conditions in PTE 2020-02 to obtain relief from the resulting prohibited transaction. (The prohibited transaction is the receipt of compensation from the rollover IRA.)  Among other things, the PTE requires a best interest process that includes comparison of the investments, expenses and services in the plan and the IRA, in light of the needs and circumstances of the participant.

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