PLANADVISER - July/August 2021 - 38

ERISA vista
Fred Reish and Joan Neri
Now a Fiduciary
A prudent process for rollover advice
QUESTION: I'm an RIA [registered investment adviser] who
provides advisory services to individuals. I understand that
if I recommend that an individual roll over plan monies to
an IRA [individual retirement account] I manage, I'm considered
an ERISA [Employee Retirement
Income Security Act]
fiduciary under the DOL [Department of Labor]'s expanded
interpretation of fiduciary advice. And this means I'll need to
satisfy ERISA's fiduciary standard of care and also to comply
with a best interest standard under DOL prohibited transaction
exemption [PTE] 2020-02 in order to avoid a prohibited
transaction. What does DOL guidance say about the process
I'll need to undertake to satisfy this standard of conduct?
ANSWER: The DOL has issued guidance in the form of
frequently asked questions (FAQ) that present the factors
you will need to consider as part of a prudent analysis and
the information you'll need to obtain about the plan. Your
analysis as to why the rollover is in the participant's best
interest will need to be documented, and you will need to
establish policies and procedures that support the process.
In our previous column (see " Rollovers and Fiduciaries, "
PLANADVISER, May/June 2021), we described how the DOL's
expanded interpretation of fiduciary advice will likely cause
rollover recommendations by investment advisers to be
fiduciary recommendations and why, as a result, relying on
the PTE and complying with its conditions will be necessary
to avoid a prohibited transaction. As we explained in that
piece, the rollover advice must satisfy the ERISA prudence
standard of conduct and duty of loyalty and, under the
PTE, must comply with a best interest standard identical
to those ERISA standards.
In the FAQ, the DOL describes the process by which one
satisfies the best interest standard for rollover advice. It
points out that the participant's options-e.g., leaving the
money in the plan, taking a taxable distribution, rolling it
over to an IRA, and, if applicable, transferring the money to
a new employer's plan-need to be considered.
The agency emphasizes that the services, fees and investments
in the plan, IRA and/or new employer's plan should
be compared. And this comparison should take into account
factors such as: the different levels of services and investments
under each option; whether the employer pays for
some or all of the plan expenses; all investment options
on the plan's investment lineup-not just those allocated
within the participant's account; the long-term impact of any
increased costs; and, as relevant, the impact of economically
significant investment features such as surrender schedules,
index annuity caps and participation rates.
Those factors, and other relevant facts, should be evaluated
in light of the participant's needs and circumstances
to determine which alternative-e.g., stay in the plan or
roll over to an IRA-is in that person's best interest. That
analysis should be documented to explain why the rollover
recommendation is in his best interest.
In the FAQ, the DOL says that to obtain the relevant
information, and to satisfy the documentation requirement,
an adviser should make " diligent and prudent " efforts to get
information about the participant's plan.
Unfortunately, the agency does not describe what
is required for the efforts to be " diligent and prudent, "
though it notes that this information is " readily available "
from the 404a-5 participant disclosure statement for
the person's plan. Obtaining this information may not be
easy, however, especially if the participant is unwilling or
unable to provide it.
Where a participant will not provide the information,
even after a full explanation of its significance-the DOL
doesn't specify what an explanation should cover, though
likely at least that the lack of that information could result
in an incorrect recommendation-and the information is
not otherwise readily available, the agency allows an alternative
procedure. The adviser may make a reasonable estimation
of expenses, asset values, risk and returns based on
publicly available information-e.g., the most recent Form
5500 and reliable benchmarks on typical fees and expenses
for the type and size of the plan at issue.
In those circumstances, the DOL says, the assumptions
used, and their limitations, must be documented and
explained to the participant.
In sum, you will need to develop a rollover process that
takes into account the factors and considerations identified
by the DOL. Also, you will need to establish policies and
procedures that support compliance with the process and
satisfy the other conditions in PTE 2020-02, as described in
our previous column.
Fred Reish is chairman of the financial services ERISA practice at
law firm Faegre Drinker Biddle & Reath LLP. Joan Neri, a nationally
recognized expert in employee benefits law, is counsel in the firm's
financial services ERISA practice, where she focuses on all aspects
of ERISA compliance affecting registered investment advisers and
other plan service providers.
38 | planadviser.com July-August 2021 Art by Tim Bower
http://www.planadviser.com
PLANADVISER - July/August 2021

Table of Contents for the Digital Edition of PLANADVISER - July/August 2021
