Fred Reish
Fred Reish represents clients in fiduciary issues, prohibited transactions, tax-qualification and Department of Labor, Securities and Exchange Commission and FINRA examinations of retirement plans and IRA issues.
View the full bio for Fred Reish at the Faegre Drinker website.
Articles by Fred Reish:
The effective date of the DOL’s new expansive fiduciary rule and the amendments to Prohibited Transaction Exemption (PTE) 2020-02 has been stayed pending the outcome of the lawsuits challenging the rule and the amended PTE.
However, broker-dealers and their registered representatives (advisors) may still be fiduciaries under the current DOL fiduciary rule when recommending rollovers and may need to comply with the current version of PTE 2020-02 to receive the management fee that results from the rollover recommendation. This blog post describes circumstances when compliance with the PTE may be needed and the PTE conditions that apply now.
Continue reading “Rollover Recommendations: PTE 2020-02 Compliance Considerations Following the DOL Fiduciary Rule Stay”
The stay of the new DOL fiduciary rule will remain in effect until the lawsuits challenging the rule are decided and appeals are resolved. This litigation process is likely to take several years. In the meantime, the fiduciary status of advisors and agents will be measured under the current regulation’s five-part test. However, in some cases the application of that test could result, as this article explains, in apparent one-time recommendations being deemed to satisfy the five-part test. As a result, advisors, agents and their firms should carefully consider where fiduciary status for retirement accounts may apply and, in those cases, should consider complying with the conditions of an applicable prohibited transaction exemption.
To view the full alert, visit the Faegre Drinker website.
The DOL’s new fiduciary advice rule, effective September 23, 2024, will cause many one-time recommendations to be fiduciary advice. As a result, many more recommendations to retirement investors—private sector retirement plans, participants in those plans, and IRA owners—by broker-dealers and their representatives (advisors) will undoubtedly be fiduciary advice under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (the Code).
If the fiduciary advice results in compensation that the advisor would not have received absent the advice (for example, commissions or 12b-1 fees on IRA investment transactions or advisory fees from the IRA, in the case of a rollover), it is considered conflicted compensation prohibited under ERISA and the Code. As a result, many advisors will need the protection provided by Prohibited Transaction Exemption (PTE) 2020-02 in order to receive the conflicted compensation resulting from the fiduciary advice.
Continue reading “The New Fiduciary Rule and Amended PTE 2020-02: Effective Date Considerations”
The DOL has proposed amendments to its regulation defining fiduciary advice so that, in most cases, a single recommendation to a retirement investor will be a fiduciary act. In addition, the DOL has proposed amendments to Prohibited Transaction Exemption (PTE) 2020-02, which provides relief for prohibited conflicts of interest (e.g., commissions and fees). Both the amended regulation and the PTE could be finalized soon. This post focuses on the proposed amendments that will impact broker-dealers and their registered representatives (investment professionals).
Background
The current and proposed PTE 2020-02 allow broker-dealers and investment professionals to receive conflicted compensation resulting from non-discretionary fiduciary investment advice to private sector tax-qualified and ERISA-governed retirement plans, participants in those plans, and IRA owners (collectively, “retirement investors.”). The current version of the PTE is not available for investment advice generated solely by an interactive website based on personal information supplied by the investor on the website (i.e., robo-advice) where there is no personal interaction or advice with an investment professional.
Continue reading “Proposed Changes to PTE 2020-02 that Impact Broker-Dealers”
Broker-dealers and their registered representatives (advisors) providing services to private sector tax-qualified and ERISA-governed retirement plans, participants in those plans and IRA owners (collectively, Retirement Investors) are subject to a number of compensation rules.
ERISA’s fiduciary responsibility rules mandate that ERISA plans pay no more than reasonable compensation to service providers (including advisors).
In addition, the prohibited transaction rules that apply to Retirement Investors set limitations on compensation. For example, if a service provider receives compensation in excess of a reasonable amount, the excess is a prohibited transaction for both the plan fiduciary and the service provider. It is also a prohibited transaction if an advisor receives compensation that varies based upon the recommendation made (i.e., variable compensation) or third-party compensation as a result of the recommendation, unless a prohibited transaction exemption applies. Lastly, some prohibited transaction exemptions – like Prohibited Transaction Exemption (PTE) 2020-02 – have other limitations on compensation. This post focuses on the compensation limitations in the DOL’s proposed amendments to PTE 2020-02.
Continue reading “Compensation Requirements under Proposed Amendments to PTE 2020-02”
Benefits and executive compensation partner Fred Reish and counsel Joan Neri coauthored an article for IAA Today on the proposed fiduciary rule issued by the Department of Labor (DOL).
The authors highlight key provisions of the proposal and the amendments to prohibited transaction exemption (PTE) 2020-02 that will potentially impact investment advisers. They also note that the next step is for the DOL to receive comments on the proposed changes and develop a final regulation, and they reasonably expect final rules in mid-year 2024.
Continue reading “The Proposed DOL Fiduciary Rule: Significant Changes for Advisers”
Beneficiaries of qualified tuition programs under Section 529 of the Internal Revenue Code (“529 accounts”) will have a new opportunity starting January 1, 2024. Under SECURE Act 2.0 (the “Act”), 529 account beneficiaries will be able to rollover funds from the 529 account into a Roth IRA without incurring tax or penalties providing certain requirements are met.
Broker-dealers and registered representatives (“advisors”) will want to know about this rule so as to advise families and students about the funding and related planning considerations for 529 accounts.
Continue reading “A New Opportunity for 529 Account Beneficiaries – Tax-Fee Rollovers to Roth IRAs”
Under Regulation Best Interest (Reg BI), the SEC imposes a best interest standard on account recommendations by broker-dealers. This is because recommending an account type is viewed by the SEC as recommending an investment strategy involving securities. The SEC imposes a similar best interest standard on registered investment advisers under the SEC’s Interpretation Regarding Standard of Conduct for Investment Advisers (the RIA Interpretation).
The DOL also imposes a best interest standard under its prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees) (the PTE), which allows broker-dealers and their registered representatives to receive conflicted compensation resulting from non-discretionary fiduciary investment advice about a change of account types for a retirement plan or an IRA.
Continue reading “The Best Interest Standard for Recommending Account Types”
Key Takeaways:
Starting with tax years beginning after December 31, 2022, a small employer can take advantage of significant tax credits under SECURE Act 2.0 (the “Act”) for establishing a new retirement plan. Under the Act, the tax credits are available for plan administrative and contribution costs.
The full tax credit is available to employers with 50 or fewer employees and there is a partial credit available to employers with 51 to 100 employees. There are several additional conditions for eligibility as well.
Broker-dealers and registered representatives (“advisors”) will want to know about these credits in order to educate small businesses and assist them in establishing plans to take advantage of the credits.
The Credit for Plan Start-Up Costs
- Eligible Small Employers
Advisors should educate small employers about the available tax credit for the administrative costs of setting up and operating an eligible employer plan for the first three years in which the plan is maintained. In order to qualify for the credit, the following conditions must be met:
Continue reading “Tax Credits for Starting Up Small Employer Plans: What You Need to Know”
Key Takeaways:
The Department of Labor (the DOL) expanded its interpretation of fiduciary advice in its guidance issued in connection with Prohibited Transaction Exemption (PTE) 2020-02. As a result, many more broker-dealers and registered representatives (advisors) became fiduciaries under ERISA and/or the Code for their recommendations to retirement investors, including rollover recommendations. Since fiduciary recommendations that result in transaction-based compensation are generally prohibited transactions, they will need the protection provided by complying with the conditions in PTE 2020-02.
A federal district court in Florida (American Securities Association (ASA) v. U.S. Department of Labor, Case No. 8:22-cv-330 (M.D. Fla. Feb. 13, 2023)) set aside the DOL’s expanded interpretation of fiduciary investment advice for rollover recommendations. At the time of writing this article, we do not know whether the DOL will appeal that decision.
However, the court did not change the regulatory definition of fiduciary advice and its application to advice to retirement plans or IRAs. Even if the expanded interpretation for rollover recommendations does not apply, where broker-dealers and their advisors provide ongoing advice to retirement investors they can still be fiduciaries for recommendations to IRA owners, plan fiduciaries and participants (and, in addition, under the DOL’s previous guidance can, in limited circumstances, still be fiduciaries for rollover recommendations). As a result, broker-dealers and their advisors will still need the relief provided by PTE 2020-02, including the best interest process it requires.
Continue reading “Florida Court Decision’s Impact on Rollover Advice”
