RIA Compliance and Practice Management Blog

Temporary Enforcement Policy on New DOL PTE for RIA Firms Advising on IRA Rollovers Is Extended

Posted by RIA in a Box

Oct 25, 2021 5:58:08 PM

DOL investment advice rule applicability to IRA rollovers

On December 18, 2020, the Department of Labor (“DOL”) published a final prohibited transaction exemption (PTE 2020-02) titled “Improving Investment Advice for Workers & Retirees.” The exemption clarifies that the DOL may consider IRA rollover advice provided by financial institutions, such as registered investment adviser (“RIA”) firms, to be under its regulatory purview in many circumstances. While many industry observers anticipated that this new exemption for investment advice fiduciaries would be tabled or delayed by President Biden’s administration, instead the DOL issued a release on February 12, 2021 noting that the exemption “will go into effect as scheduled on February 16, 2021.” As such, RIA firms registered both at the state and federal level with the Securities and Exchange Commission (“SEC”) may need to take immediate action to be in compliance with this new exemption.

Note: RIA in a Box LLC is not a law firm and does not provide legal advice. We strongly advise that all RIA firms that provide services to individual retirement investors, pension plans, profit sharing plans, and/or retirement plans to consult with a qualified Employee Retirement Income Security Act of 1974 ("ERISA") attorney in matters relating to DOL and ERISA law. This overview is provided for general information purposes only and should not be relied upon to take any action. This post below was last updated on October 25, 2021. As the DOL issues additional guidance, we anticipate updates and/or modifications will be made to this solely educational overview. Please see our previous post outlining the new PTE 2020-02 exemption

DOL Temporary Enforcement Policy Update
The DOL previously announced the new exemption would go into effect as of February 16, 2021, but the DOL’s release also reaffirmed that the “temporary enforcement policy stated in Field Assistance Bulletin 2018-02 would remain in place until December 20, 2021.” The original field assistance bulletin clarifies that:

the Department will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted in the BIC Exemption and Principal Transactions Exemption, or treat such fiduciaries as violating the applicable prohibited transaction rules.

Today, the DOL issued a new Field Assistance Bulletin 2021-02 which notes the following:

for the period from December 21, 2021, through January 31, 2022, the Department will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the Impartial Conduct Standards for transactions that are exempted in PTE 2020-02 or treat such fiduciaries as violating the applicable prohibited transaction rules.

Thus, through January 31, 2022, it's possible RIA firms providing fiduciary investment advice regarding IRA rollovers may not need to meet the full requirements of the new exemption as long as the firm is complying with the Impartial Conduct Standards.

Furthermore, today's bulletin notes the following:

Second, the Department has determined that it will not enforce the specific documentation and disclosure requirements for rollovers in PTE 2020-02 through June 30, 2022. All other requirements of the exemption, however, will be subject to full enforcement as of February 1, 2022. The Department is convinced that this temporary and limited enforcement relief is appropriate and in the interest of plans, plan fiduciaries, plan participants and beneficiaries, IRAs, and IRA owners.

Thus, from December 21, 2021 through June 30, 2022, the DOL states it will not pursue prohibited transaction claims against firms who are in compliance with the new exemption except for the new disclosure and documentation requirements.

The Impartial Conduct Standards
This new bulletin defines the Impartial Conduct Standards as follows:

The Impartial Conduct Standards specifically require financial institutions and investment
professionals to:

    • Give advice that is in the “best interest” of the retirement investor. This best interest standard
      has two chief components: prudence and loyalty;
    • Under the prudence standard, the advice must meet a professional standard of care as
      specified in the text of the exemption;
    • Under the loyalty standard, advice providers may not place their own interests ahead
      of the interests of the retirement investor, or subordinate the retirement investor’s
      interests to their own;
    • Charge no more than reasonable compensation and comply with federal securities laws
      regarding “best execution”; and
    • Make no misleading statements about investment transactions and other relevant matters.

Be sure to check back soon as we continue to provide additional updates related to this latest DOL prohibited transaction exemption.

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Topics: RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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