US Department of Labor announces temporary enforcement policy on prohibited transaction rules applicable to investment advice fiduciaries
WASHINGTON – The U.S. Department of Labor’s Employee Benefits Security Administration today announced Field Assistance Bulletin 2021-02, “Temporary Enforcement Policy on Prohibited Transaction Rules Applicable to Investment Advice Fiduciaries.”
On Dec. 18, 2020, the department adopted Class Prohibited Transaction Exemption 2020-02, “Improving Investment Advice for Workers & Retirees,” a new exemption under the Employee Retirement Income Security Act and the Internal Revenue Code for fiduciaries who provide investment advice to ERISA-covered pension plans and individual retirement accounts. This exemption became effective on Feb. 16, 2021, but the department provided transitional relief through Dec. 20, 2021, which relieved fiduciaries of the obligation to comply fully with many of the exemption’s conditions during that period.
The department understands that the Dec. 20 expiration date of the current transitional relief poses practical difficulties for financial institutions. These institutions have expressed specific concern that they would incur significant additional costs to distribute disclosures because Dec. 20 does not align with their regular distribution cycle for disclosures. They also have asserted that the expiration date would make it difficult to conduct the required retrospective review on a calendar-year basis. In addition, financial institutions maintain that they face significant challenges in implementing the rollover documentation and disclosure requirements in a sufficiently automated and systematic manner by the Dec. 20 deadline, and that these challenges and concerns may delay their ability to rely on the exemption as the department intended.
“The class exemption provides meaningful protections for individual investors and we continue to emphasize the importance of compliance,” said Acting Assistant Secretary of Labor for Employee Benefits Security Ali Khawar. “Based on concerns raised, we’ve concluded that providing additional transition relief for financial institutions that are working in good faith to build systems to comply with the exemption conditions is appropriate.”
FAB 2021-02 provides that from Dec. 21, 2021, through Jan. 31, 2022, the department will not pursue prohibited transaction claims against investment advice fiduciaries who are working diligently, and in good faith, to comply with the Impartial Conduct Standards (i.e., best interest, reasonable compensation and without misleading statements) for transactions exempted in PTE 2020-02. In addition, the department will not treat such fiduciaries as if they were violating the applicable prohibited transaction rules. Finally, the department will not enforce the specific documentation and disclosure requirements for rollovers in PTE 2020-02 through June 30, 2022. However, all other requirements of the exemption will be subject to full enforcement on Feb. 1, 2022.
The department continues to review issues of fact, law and policy related to the exemption, and more generally, its regulation of fiduciary investment advice.