DOL Releases Additional Prohibited Transaction Exemption Guidance
On April 14, 2021, the Department of Labor (DOL) issued two pieces of guidance on its new fiduciary advice prohibited transaction exemption, PTE 2020-02. The first piece is titled, “Choosing the Right Person to Give You Investment Advice: Information for Investors in Retirement Plans and Individual Retirement Accounts,” which is intended to educate retirement savers about considerations when choosing a potential advisor. The second piece of guidance, which is briefly highlighted further below, is titled, “New Fiduciary Advice Exemption: PTE 2020-02 Improving Investment Advice for Workers & Retirees,” and is a detailed set of frequently asked questions (FAQs).
PTE 2020-02 was issued under the Trump administration and replaced a fiduciary investment advice guidance package issued under the Obama administration that was struck down in federal court in 2018. While the exemption became effective February 16, 2021, the DOL had indicated related guidance would be published soon.
The guidance again confirms that a temporary EBSA enforcement policy that has been in place since the Obama era guidance was vacated—Field Assistance Bulletin (FAB) 2018-02—will remain in place until December 20, 2021.
The DOL indicates that it is considering additional actions to improve the exemption and the investment advice fiduciary regulation, but that core components of the exemption, including the impartial conduct standards, are fundamental investor protections which should not be delayed, and that any regulatory actions will be preceded by notice and opportunity for comment.
Several questions in the FAQs focus on rollover recommendations, including when the recommendation is considered to be on a “regular basis” and what considerations and documentation are needed to obtain prohibited transaction relief for such recommendations.
In the section titled, “Compliance with PTE 2020-02”, the DOL reviews requirements of the PTE related to the following.
Impartial conduct standards, including standards of best interest, reasonable compensation, and making no misleading statements
Disclosures concerning acknowledgement of financial institution and investment professional status as fiduciary, as well as any conflicts of interest
Policy and procedures to include addressing potential conflicts of interest related to financial institution “payout grid” or fixed percentage commission compensation schemes
Retrospective review including careful review and certifications by senior executives of a written report
