Department of Labor Provides Temporary and Limited Relief to Investment Advice Fiduciaries
by Barry Salkin, and Stephen Wilkes
On October 25, the DOL issued a temporary enforcement policy related to Prohibited Transaction Exemption (“PTE”) 2020-02, an exemption for investment advice fiduciaries with respect to employee benefit plans and individual retirement accounts. The exemption became effective on February 16 of this year, but the DOL provided transitional relief through December 20, 2021.When the DOL finalized PTE 2020-02, it also announced that the temporary enforcement policy of Field Advice Bulletin(“FAB”) 2018-02 would also remain in effect until December 20, 2021 . Under FAB 2018-02, the DOL stated that it would not pursue prohibited transaction claims against investment advice fiduciaries who work diligently and in good faith to comply with the impartial conduct standards for transactions that would have been permissible under the 2016 DOL regulations addressing the same general subject matter or treat such individuals as violating the applicable prohibited transaction rules.
In FAB 2021-02, the DOL explained that the December 20, 2021, expiration date of the temporary enforcement policy presented practical difficulties for financial institutions that are in the process of complying with the conditions of PTE 2020-02. In response, the DOL provided additional transition relief to a limited degree in two respects. First, for the period from December 21, 2021, through January 31, 2022, the DOL 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 for transactions that are exempted in PTE 2020-02 or treat such fiduciaries as violating the applicable prohibited transaction rule. Second, for the period from December 31, 2021, through June 30, 2022, the DOL will not pursue prohibited transaction claims against investment advice fiduciaries who are otherwise in compliance with PTE 2020-02 based solely on their failure to comply with the disclosure and documentation requirements for rollover recommendations. However, underscoring the limited nature of the relief provided, the DOL stated that all other requirements of the exemption will be subject to full enforcement as of February 1, 2022. This temporary limited enforcement policy applies equally to the IRS, but does not address the rights or other obligations of other parties, who could seek to enforce PTE 2020-02 in full at an earlier date.
In April FAQs, the DOL stated that it anticipated issuing more substantive guidance with respect to PTE 2020-02 and related issues such as the definition of investment advice fiduciary under the DOL regulations. Presumably that additional guidance will be forthcoming. However, the investment advice fiduciaries whose activities are subject to PTE 2020-02 should continue with their actions to come into compliance with PTE 2020-02. While FAB 2021-02 provides an extended date to come into full compliance in two areas, the actions required for full compliance with PTE 2020-02 are unaffected.