November 17, 2021

Financial Advisor Magazine Shares Takeaways From Joshua Waldbeser on DOL PTE 2020-02 Compliance

Financial Advisor Magazine shared takeaways from a Faegre Drinker webinar, including insights from benefits and executive compensation partner Joshua Waldbeser on what registered investment advisers (RIAs) can expect from enforcement of the Department of Labor’s (DOL’s) fiduciary rule and from prohibited transaction exemption (PTE) 2020-02.

If DOL regulators find that an RIA or a broker-dealer is not putting investors’ best interests first when making a retirement plan or an IRA rollover suggestion, the agency can impose a 10-year moratorium on rollovers, a 100% excise tax and an order requiring a firm to make investors whole, Waldbeser explained. He added that all three sanctions could be exercised if violations are systemic enough.

Regarding the extension of the enforcement relief period to Jan. 2022, Waldbeser emphasized that the DOL will be “very active when it comes to enforcing the Employee Retirement Income Security Act (ERISA).” He further described what a firm that “engages in a systematic pattern of violating an exemption” could face and noted that a rollover suspension is just one of the enforcement tools the DOL has at its disposal.

Waldbeser then detailed what could happen if the DOL finds fiduciary and PTE violations at an RIA or a broker-dealer. “It’s safe to say there will be a fair amount of coordination between the DOL on the ERISA side, the Securities and Exchange Commission on the Regulation Best Interest side and maybe to some extent the Internal Revenue Service, which has the jurisdiction to collect the excise takes for prohibited transaction violations under the tax code.”

Lastly, Waldbeser said that enforcement is designed to be very prohibitive for a firm that has had an excise tax levied against it. “When you’re giving rollover advice, it’s important to remember you’re giving it to a plan participant, so you are subject to ERISA at that moment. It’s not until the money moves over to an IRA that you’re outside of ERISA. But under the code as well, there is a two-tier system of excise taxes that applies to almost all ERISA plans, in addition to IRAs.”

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