Rollover Rules for 457(b) Plans

Benefits and executive compensation partner Fred Reish and counsel Joan Neri coauthored an article for PLANADVISER discussing registered investment advisers (RIAs) who provide investment advisory services to participants in retirement plans, including government plans.

In the Q&A article, one such RIA that recommends that a plan participant in a 457(b) plan roll over their account to an individual retirement account asked, “Is this considered fiduciary advice under the Employee Retirement Income Security Act (ERISA) and/or the Internal Revenue Code (IRC) and therefore requiring compliance with Department of Labor (DOL) Prohibited Transaction Exemption (PTE) 2020-02 in order to avoid a prohibited transaction? If not, are there other fiduciary rules that apply?”

Reish and Neri explain that the ERISA fiduciary standard, along with the prohibited transaction rules of ERISA and the IRC, do not apply to government plans, so PTE 2020-02 relief isn’t needed in the case of a rollover recommendation. They add that under the Securities and Exchange Commission’s (SEC) Interpretation Regarding Standard of Conduct for Investment Advisers, a rollover recommendation — including one involving a 457(b) plan account — is subject to the SEC’s best interest standard.

The authors discuss the similarities and differences between the DOL’s and the SEC’s best interest processes, concluding that to satisfy the SEC’s best interest standard, the RIA should consider using a process similar to that required under the PTE.

The full article is available for PLANADVISER subscribers.