ThinkAdvisor turned to benefits and executive compensation partner Fred Reish for insight on the Department of Labor’s (DOL) new fiduciary prohibited transaction exemption (PTE). Specific reasons for each rollover recommendation must be put in writing starting July 1, 2022.
According to Reish, advisers and firms “will need to provide to the participant, in writing, the specific reasons why a rollover is in [their] best interest.” He added, “As a result, the analysis and recommendation need to be personalized, or individualized, to the participant and his or her circumstances.”
Under the DOL’s fiduciary PTE 2020-02, Improving Investment Advice for Workers & Retirees, which became effective on Feb. 16, when recommending rollovers, “advisers need to focus on the needs and circumstances of the participant, and then evaluate the investments, services and expenses of the plan versus the individual retirement account (IRA),” Reish stated.
Reish also noted that he is concerned some firms “may be looking for generalized reasons why rollovers might be good for a typical or hypothetical participant. But that is not what the rules say. Instead, PTE 2020-02 says that the recommendation must be based on the financial circumstances, risk tolerance, needs and investment objectives of the particular participant.”
Beginning July 1, Reish continued, “the specific reasons for the rollover recommendation must be reduced to writing and provided to the participant.” Attorneys and regulators, he said, “will undoubtedly look at the written reasons after the fact and see if they reflected the needs and circumstances of that participant.”
The publication also shared comments from a blog post where Reish discussed DOL investigations, reviews of Forms 5500 and potential “‘survey’ investigations of the reports on the initial retrospective annual reviews.”