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PTE 2020-02 Compliance: Avoiding Five Common Mistakes

It may be a New Year, but 2022 is going to seem very familiar to Broker-Dealers (BD) and their Registered Representatives who advise retirement plans and IRAs: they are going to be spending a lot of time working to comply with new exemptions and new ERISA rules coming from the Department of Labor (DOL). As some of these deadlines are right around the corner, in this post we’re going to review the five most common pitfalls and problems we’ve seen clients face, and how to better address them in disclosures and policies and procedures.

So what’s ahead this year regarding fiduciary advice and exemptions? First, DOL is working on a new proposed definition of ERISA fiduciary investment advice to replace the 1975 regulation, and could publish the new proposal for comments this spring. This proposal may also include changes to DOL’s new Prohibited Transaction Exemption 2020-02 (the PTE). If DOL succeeds in rewriting these rules, they likely will go into effect in 2023. That means the current rule and the current version of the PTE will likely remain in effect for the next 12-18 months.

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SLOW Your Roll: DOL Temporarily Halts Enforcement of Compliance with PTE and ERISA Fiduciary Obligations for Rollover Advice

Benjamin Franklin once said “don’t put off until tomorrow what you can do today.” While that is always prudent advice, the Department of Labor (DOL) believes it’s best to grant an extension to investment advisors and broker-dealers to comply with the full terms of the Prohibited Transaction Exemption 2020-02 (PTE 2020-02), beyond the current December 21, 2021, deadline. A previous blog post covered the scope of the PTE and provided guidance on compliance.

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The DOL’s Fiduciary Interpretation and Exemption: Impact on Rollover Recommendations

On December 18, 2020, the Department of Labor published its expansion of the fiduciary interpretation and exemption for conflicted advice in the Federal Register. (Prohibited Transaction Exemption 2020-02, Improving Investment Advice for Workers and Retirees.) The exemption will be effective on February 16, 2021. The interpretation is effective immediately.

Since the effective date for the exemption is after the inauguration of the Biden administration, it is almost certain that the effective date will be further delayed. During that delay, we think it is likely the exemption will be revised or possibly withdrawn. But, it is just as likely that the expanded definition of fiduciary advice for rollover recommendations will be retained and possibly expanded. That could make life more difficult for broker-dealers, investment advisers and insurance companies. While these rules will affect all of those industries, this article focuses on the impact of the likely outcomes on broker-dealers.

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