August 20, 2021

InsuranceNewsNet Shares Takeaways From Brad Campbell and Fred Reish on the DOL’s PTE 2020-02 Deadline

In “DOL Not Budging On PTE 2020-02 Deadline,” InsuranceNewsNet featured insights from benefits and executive compensation partners Brad Campbell and Fred Reish on how the Department of Labor (DOL) appears to be listening to advisers and their representatives as they ask for a delay on the Dec. 20 enforcement of its newest investment advice prohibited transaction exemption but is still not budging.

During Faegre Drinker’s “Inside the Beltway” webinar, Campbell said advisers have been asking for an extension on prohibited transaction exemption (PTE) 2020-02 because they say they have not been able to develop a compliance structure. “They’ve been talking to the DOL about that, and the DOL has been listening, but so far, no movement,” he added. “We’re already operating under the new guidance. Most rollovers are going to be fiduciary advice, and you need to be working on getting in compliance with an exemption by Dec. 20.”

“Separately, the DOL has said even though we’ve just issued this new guidance, newish guidance, we still think the rule itself needs to be changed,” Campbell said. “They’ve announced that in December, they’re scheduled to propose a whole new fiduciary rule replacing the 1975 rule.” He also noted, “They’re going to have a long debate over the course of next year about what the new regulation should read. And then we’ll have to go through another round of compliance probably in 2023. The fiduciary rule is the gift that keeps on giving in terms of constant change, interpretation and things.”

Reish clarified the four steps advisers must take now to satisfy the current impartial conduct standard and a fifth one that the DOL plans to enforce on Dec. 20.

The second step can be tricky, Reish explained, because retirement plan participants often don’t know what an annual 404(a)(5) fee disclosure notice is, much less where to find it. That disclosure shows the fees the client is paying in the current plan, which is the base of comparison with compensation involved in the new investment or product. The DOL has been clear that they are not allowing exceptions in obtaining that information, he said.

The new fifth step is written disclosure as to why the rollover recommendation is in the participant’s best interest. “And obviously, from a lawyer and a risk management perspective, that’s a little scary,” Reish stated, “because that piece of paper, if it’s flawed in some way, and maybe not flawed, could come back to be the basis for a claim either a justifiable claim if it’s flawed, or a non-justifiable claim, but a claim nonetheless.”

However, Reish further noted that advisers should not be too limited in what they see falling under what the DOL calls a rollover recommendation. Some examples are a rollover from an individual retirement account (IRA) to a plan, transferring an IRA from one firm to another, and even switching from a commission-based account to a fee-based account within an IRA, he continued.

Campbell added that Tim Hauser, considered the DOL’s chief operating officer, has been saying publicly that advisers should not think that they can go close to the line and not tip over into conflicted advice just because they did not actually say, “Therefore, I recommend a rollover.”

“Basically, what he’s trying to suggest is, ‘If you’re going to be managing the money on the other side, chances are you’ve probably been involved in making, whether you use the magic words or not, the recommendation on the rollover. And we at the DOL are going to be watching,’” Campbell said. “I don’t think you can slide by on a technicality.”

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