If Caught Off Guard by a Failure: Advisers Can Self-Correct Some Violations of PTE 2020-02

Benefits and executive compensation partner Fred Reish and counsel Joan Neri co-authored an article for PLANADVISER discussing registered investment advisers (RIAs) who comply with the Department of Labor’s (DOL) Prohibited Transaction Exemption (PTE) 2020-02 to avoid prohibited transactions.

In the Q&A article, one such RIA mentioned that they know they must comply with the PTE’s “Improving Investment Advice for Workers and Retirees” when recommending a plan participant roll over their account to an individual retirement account (IRA). Concerned with overlooking the PTE’s requirements, the RIA asked, “What should I do if I discover a failure to comply?”

Reish and Neri explain that the PTE has a self-correction procedure RIAs need to follow to avoid a prohibited transaction but that some conditions of this procedure are difficult to interpret without additional guidance from the DOL. The authors list and explain the conditions when the self-correction process is satisfied and when the failure will not be treated as a prohibited transaction:

• The failure did not result in investment losses to the investor, or, if losses did result, the firm made the investor whole.
• The firm corrects the violation and notifies the DOL of the pertinent facts via email at IIAWR@dol.gov within 30 days of correction.
• The correction is made no later than 90 days after the firm learns of the violation or reasonably should have learned about it.
• The firm notifies the person responsible for conducting the retrospective review during the relevant review cycle, and the violation and correction are specifically set forth in the written report.

In conclusion, the authors recommend that RIAs closely supervise rollover recommendations to ensure the processes are followed and to promptly identify and correct any failures.

The full article is available for PLANADVISER subscribers.