Retirement Account Rollovers and the Fiduciary Rule: New Guidance

Advisers who recommend that retirement plan participants roll their accounts from a plan to an individual retirement account or annuity will generally be viewed as providing fiduciary advice under new Department of Labor (DOL) guidance, according to an article recently published in the Journal of Financial Planning.

That guidance, according to the article written by Fred Reish, Bruce Ashton and Stephen Pennartz of Faegre Drinker, is in Prohibited Transaction Exemption (PTE) 2020–02, which allows investment advisers and their firms to receive compensation from rollover IRAs in connection with rollover recommendations by satisfying certain conditions, including the requirement that the recommendation is in the best interest of the participant/retirement investor.

Among other things, investment professionals who make rollover recommendations, particularly where PTE 2020–02 differs from the SEC guidance on rollover recommendations, must consider the following, according to Reish:

The SEC’s Regulation Best Interest and the DOL’s PTE 2020-02 have remarkably similar provisions on rollovers. But there are some differences. For example, both require that an adviser consider:

1. The participant’s facts and circumstances,

2. The investments, costs and services in the plan, and

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3. The investments, costs and services available in the IRA.

And then both require, said Reish, that the adviser engage in a best-interest process to determine which alternative (e.g., leave the money in the plan, roll over to an IRA, take a taxable distribution, or roll to the plan of a new employer) is in the best interest of the participant.

But there are two significant differences, Reish said:

1. PTE 2020-02 requires that the adviser and his or her firm provide the participant, in writing, with the “specific reasons” why the rollover is in the participant’s best interest. This step doesn’t have to be satisfied until the DOL’s non-enforcement policy expires on December 20.

2. Under ERISA, there is a potential private right of action for breach of fiduciary duty if the rollover recommendation is not a prudent recommendation. But, only the SEC and FINRA can enforce Reg BI; that is, there is not a private right of action.

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